The funded status of public pension plans continues to rise in aggregate, while plan expenses continue to fall, said a study released Tuesday by the National Conference on Public Employee Retirement Systems and Cobalt Community Research.
Of the 159 public pension funds analyzed, the average funded status was 76.2% at the end of the plans’ 2016 fiscal years, the third consecutive year of funding gains, and up from 74.1% in 2015 and 71.5% in 2014.
The cost of administering these plans and paying investment managers, meanwhile, fell to 56 basis points on average in 2016, down from 60 basis points in 2015 and 61 basis points in 2014.
The study also found that nearly 40% of the analyzed funds lowered their assumed rate of return, primarily between fiscal years 2015 and 2016. Nearly a quarter of the 79 funds that were analyzed in both 2015 and 2016 reduced their investment return assumptions in 2016.
In fiscal year 2016, the pension funds returned on average a gross 1.7% with real estate and private equity/hedge funds/alternative investments posting the highest returns. Commodities, international equity and global equity posted negative returns for the year. Average three-, five-, 10- and 20-year gross returns were 8.6%, 8.3%, 6.2% and 7.9%, respectively. In 2015, the average gross return was 11.2%.
In terms of asset allocation, equity allocations decreased to an average 51% in 2016, down from 54% in 2015. Private equity/hedge fund/alternative allocations also fell to an average 8.7% from 11% in 2015.
NCPERS and Cobalt Community Research studied 159 state, local and provincial public pension funds in the U.S. and Canada representing more than $1.5 trillion in aggregate assets.
Of those, 77% were local pension funds and 23% were state funds.