The most important trait that allowed some public pension plans to weather the financial crisis better than others was full employer contributions made consistently over time, according to a study to be released Wednesday by the National Institute on Retirement Security.
“It’s clear that to get a good funding level, you need to make that” annual required contribution, Ilana Boivie, NIRS director of programs and one of the study’s co-authors, said in an interview.
All of the six statewide defined benefit plans in the study had employee contributions and anti-spiking measures as well. Other factors common to most of the plans were improvements like multiplier increases that were actuarially valued and properly funded; careful cost-of-living adjustments and long-term economic actuarial assumptions. “When you do these things, it pays off,” said NIRS Executive Director Diane Oakley in an interview. “You want to find the right balance to get an adequate but affordable pension plan.”
The study looked at six statewide systems — the Delaware State Employees Pension Plan, Idaho Public Employee Retirement Fund, Illinois Municipal Retirement Fund, New York State Teachers’ Retirement System, North Carolina Teachers & State Employees Retirement System and the Texas Teacher Retirement System— over the 10-year period from 2000 to 2010. The market value of the plans’ assets at the time of the study was $300 billion, or 10% of total public pension assets over that period. Despite lower-than-expected investment gains and two economic downturns, each plan remained well-funded, the study found.
The study, “Lessons from Well-Funded Public Pensions: An Analysis of Six Plans that Weathered the Financial Storm,” is available at www.nirsonline.org. The group will hold a webinar on the study at 11 a.m. EDT Wednesday.