NYSTRS models excellence in several key areas critical to the long-term health of public pension funds, according to a study released today.
The report, titled "Lessons from Well-Funded Public Pensions: An Analysis of Six Plans that Weathered the Financial Storm," was authored by Dr. Jun Peng, an associate professor at the University of Arizona's School of Government and Public Policy, and Ilana Boivie, an economist and director of programs at the National Institute on Retirement Security (NIRS).
The study identified six features that enabled the plans studied to remain sustainable and affordable even during significant economic downturns:
- Employer pension contributions that pay the full amount of the annual required contribution, and that maintain stability in the contribution rate over time;
- Employee contributions to help share in the cost of the plan;
- Benefit improvements that are actuarially valued before adoption and properly funded upon adoption;
- Cost of living adjustments (COLAs) that are granted responsibly;
- "Anti-spiking" measures that ensure actuarial integrity and transparency in pension beneﬁt determination; and,
- Economic actuarial assumptions, including both the discount rate and inﬂation rate, that can reasonably be expected to be achieved over the long term.
"While each of these plans experienced less than expected investment gains over the 10-year study period beginning in 2000, each remained well-funded despite two economic downturns," the report notes. "This suggests that the funding policies they used are strong, and worthy of examination by other public pension systems."
Public pension plans like NYSTRS that are built to weather severe market fluctuations receive "scant attention," said Diane Oakley, NIRS executive director. Even separate of this study, she added, data indicates "the vast majority of public pensions were well-funded going into the financial crisis, took a severe blow like all investors, and are recovering as the financial markets rebound.
"As such, we hope this new study serves to re-focus pension policy debate on a productive, pragmatic examination of pension plans that remained strong even after a decade of unprecedented financial market ups and downs," Oakley said.
As stated in the Peng/Boivie study:
In the current discussion on unfunded liabilities and pension reform, what is often missing is an understanding of the considerable variation in the financial health of public pension plans. While it is true that some state and local pension plans are not well funded, and a few are severely underfunded, there are still many public pension plans that are consistently well funded, even in the wake of the Great Recession. The existence of such well-funded pension plans illustrates that public pensions can be designed to be affordable and sustainable, even through one of the most substantial economic downturns.
The study was conducted via a comprehensive analysis of the funding policy, benefit design and economic assumptions for the six public pension plans. In addition to NYSTRS, the plans studied were:
- Delaware State Employees Pension Plan;
- Idaho Public Employee Retirement Fund;
- Illinois Municipal Retirement Fund;
- North Carolina Teachers & State Employees Retirement System; and,
- Teacher Retirement System of Texas.
The National Institute on Retirement Security is a not-for-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement security including financial services firms, retirement plan sponsors and service providers, and trade associations, among others.
More information, as well as a link to the full study, is available at www.nirsonline.org.