Public retirement system revenues depend more on earnings on investments to drive revenues, according to an annual study by the National Conference on Public Employee Retirement Systems.
The 2020 NCPERS Public Retirement Systems Study, conducted with Cobalt Community Research, covered the most recently concluded fiscal year. Of the 138 state and local pension systems responding, 51% were state systems and the rest were local systems, with a collective 12.8 million participants and more than $1.5 trillion in assets.
For fiscal year 2020, earnings on investments accounted for 71% of system revenues, according to the survey, released Monday, up from 69% the year before. Employer contributions accounted for 20% of revenues, down from 22% the year before, and the share for employee contributions remained unchanged at 9%.
"The data show that a long investing horizon uniquely positions pensions to provide safe, reliable retirement income for millions of public servants," said Hank H. Kim, NCPERS' executive director and chief counsel, in a news release. "Employers and employees play critical roles by paying into pension funds, but patient, long-term investing is what truly differentiates public pensions from other retirement vehicles."
Public retirement systems' administrative and investment expenses rose in 2020. In the latest fiscal year, the pension systems averaged 0.6% in administrative costs and investment manager fees, up from 0.55% the year before.
The average assumed rate of return among respondents was 7.26%, up from 7.24% the prior year. Specifically among systems that responded to both this year's and last year's survey, the average rate rose to 7.24% from 7.19%.
The average funding ratio among respondents was 75.1%, up from 72.4% the year before. The study notes that systems whose members are eligible for Social Security had higher funding levels.
The study also notes that the COVID-19 pandemic and resulting lockdowns have accelerated trends in the adoption of communication capabilities. The ability of board members to participate in meetings via phone or videoconference rose to 58% from 19% the prior fiscal year, and 54% of systems offer live web conferences to members (a question not provided in last year's survey).
Another 19% of systems are considering offering web conferences.
NCPERS is the largest trade association for public-sector pension funds, representing more than 500 funds throughout the U.S. and Canada, with a collective $4 trillion in pension assets.
The study is available on NCPERS' website.