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A survey by the National Conference on Public Employee Retirement Systems found public pensions are adapting their benefits and business practices to suit a changing environment.
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"As changes emerge in the political, economic, and demographic landscape, funds are adapting their design and assumptions to respond and to maintain their sustainability," NCPERS wrote in the 2020 NCPERS Public Retirement Systems Study.
NCPERS surveyed 138 state and local government pension funds between September 2020 and December 2020. The plans serve over 12.8 million active and retired members and have collective assets over $1.5 trillion.
Between 2019 and 2020, funded levels increased almost three percentage points, from 72.4% to 75.1%. The average 1-year return was around 8.1%, NCPERS found. The 5-year and 20-year averages were below the assumed rate of return, while the 10-year average outperformed. The average plan expense increased from 55 basis points to 60 bps.
Plans implemented or considered a number of changes in 2020, the study found. Over half have lowered the actuarial assumed rate of return, and 17% are considering doing so. Roughly one-third of plans have raised their benefit age or service requirements, or increased employee contributions; 4% are considering implementing each of these changes. Fourteen percent of pensions have shortened the amortization period to improve the plans funded status, while 12% are holding or lengthening the period to improve affordability. In 2019, plans were much more keen to shorten the amortization period, with 20% saying they had already done so, and 8% considering it.
Pensions are holding steady on the benefits that they offer participants. Roughly three-quarters already offer a defined benefit plan or disability benefit while 70% offer an in-service death benefit. Almost half offer an automatic post-retirement COLA, while about a third offer a compounding post-retirement COLA, deferred compensation or employer pick up of employee contributions. Fewer than 3% of plans are considering offering any of these benefits, including those with low current utilization, such as defined contribution benefits (14% currently implemented, 1% considering) or deferred retirement option plan (28% currently implemented, 1% considering).
Sixty-two percent of plans conducted a death audit in 2020, up from 60% in 2019. NCPERS also found more plans were updating or strengthening asset allocation studies: from 53% to 57%.
Pensions are also increasing digital tools and security. Fifty-two percent of plans conducted an information system security audit in 2020, up from 47% the prior year.
This accompanies an increase in software and digital communication tools. Almost half have enhanced administrative software used for member data, up from 44% in 2019, while 12% are considering it, according to the study.
Meanwhile, NCPERS found that adoption of phone or videoconference tools to allow board members to vote on pension business leaped from 19% to 58%. Digital communication tools for participants also increased, as the percentage of plans offering online portals to access account information increased from 47% to 52%.
Pensions in 2020 showed a slight increase in interest in financial wellness and retirement readiness tools, as plans offering this benefit increased one percentage point to 38%.
Operational performance benchmarking fell, with 31% of plans implementing this kind of analysis in 2019 compared to 25% in 2020.
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