National Association of State Retirement Administrators

Public Fund Survey

Summary of Findings for FY 2017                                                                                                          November 2018

About the Public Fund Survey

The Public Fund Survey is an online compendium of key characteristics of most of the nation’s largest public retirement systems. The Survey is sponsored by the National Association of State Retirement Administrators.

Beginning with fiscal year 2001, the Survey contains data on public retirement systems that provide pension and other benefits for 12.9 million active (working) members and 9.3 million annuitants (those receiving a regular benefit, including retirees, disabilitants and surviving beneficiaries). At the end of fiscal year 2017, systems in the Survey held combined assets of $3.47 trillion. The membership and assets of systems included in the Survey comprise approximately 85 percent of the entire state and local government retirement system community. Since FY 13, much of the survey data has been compiled by the Center for Retirement Research at Boston College as part of Public Plans Data, an online, interactive resource containing public retirement system information culled chiefly from public retirement system annual financial reports, and also from actuarial valuations, benefits guides, system websites, and input from system representatives. This report, focusing on FY 17, uses graphs to illustrate and describe changes in selected elements of the survey.

Some of the information on this page is presented in the context of changes to median, or midpoint, data. Presenting changes based on a median, rather than aggregate (total) basis, reduces the effects of very large plans and plans with extreme or exceptional results, enabling readers to focus on the experience of a more typical plan instead of results that could be skewed by the experience of one or a few outliers.

Summary of Findings

Figure A plots the aggregate actuarial funding level among plans in the Survey since its inception in FY 2001. The funding level in FY 17 was 71.9 percent, down slightly from the prior year. The aggregate actuarial value of assets grew by 4.4 percent, from $3.15 trillion to $3.29 trillion. This value reflects changes based on the multiple timeframes pension plans use to phase in investment gains and losses, sometimes referred to as smoothing. Three plans in the survey use their funds’ market value of assets to value liabilities, i.e., these plans do not phase in investment gains and losses. Combined liabilities grew from $4.36 trillion to $4.59 trillion, or 4.9 percent. Liabilities grow primarily as active plan participants accrue retirement benefit service credits and as their salaries increase.

FY 17 marks the sixth consecutive year that aggregate funding levels have been within a narrow range. Many factors combine to affect a plan’s funding ratio, complexity that is increased when incorporating a large number of plans, each of which is unique in various ways pertaining to its combination of actuarial experience, methods, and assumptions. Major factors affecting the aggregate funding level include pension funds’ investment returns, illustrated by Figure L, and changes in investment return assumptions, charted on Figure M. Although investment returns for most plans have exceeded assumptions for five-year periods ended in FY 17, this experience has been offset by many reductions in investment return assumptions and changes to mortality assumptions to reflect longer expected lifespans. See the NASRA issue brief on investment return assumptions.

Figure A


The latest individual funding levels of the 121 plans in the Survey are depicted in Figure B. The size of each circle in the chart is roughly proportionate to the size of each plan’s actuarial liabilities—larger bubbles reflect larger plans and smaller bubbles reflect smaller plans. The median funding level is 72.9 percent, and the range is 16.3 percent to 110.8 percent. This chart illustrates the wide distribution that exists in public pension funding levels.

Figure B

Figure C plots the median annual change among plans in the Survey in the actuarial value of assets and liabilities since FY 01. For a pension plan’s funding level to improve, its actuarial value of assets must grow faster than its liabilities. For the seventh consecutive year, at a median rate below 5.0 percent, liability growth remains notably lower than historical rates. This lower rate of growth in liabilities is due to several factors, chiefly slow rates of growth in salaries and employment levels, and the effects of many reforms (chiefly reductions) in pension benefits enacted in recent years. Rates of liability growth would be lower were many plans not also reducing their investment return assumptions in recent years (see Figure M), an action that increases a plan’s liabilities. 

As with individual plans, the volatility in aggregate changes in asset values this measurement period also is muted compared to actual changes in market values of assets. Most plans phase in investment gains and losses over several years, a process that is intended to smooth out market volatility. 

Figure C

The Survey measures two types of retirement system members: actives and annuitants. Actives are those who currently are working and earning retirement service credits; most actives also make contributions toward the cost of their pension benefit. Annuitants are those who receive a regular benefit from a public retirement system; these are predominantly retired members, but also include those who receive a disability benefit (disabilitants), and survivors of retired members or disabilitants.

As shown in Figure D, the median rate of increase in annuitants among systems in the Survey declined for a fifth consecutive year, with FY 17 marking the lowest rate of annuitant growth since FY 07. The number of active members grew for the third consecutive year in FY 17, following six consecutive years of decline, from FY 09 to FY 14. This pattern of change in the number of active members is consistent with US Census Bureau reports showing a continued reversal of a trend of fewer persons employed by state and local government, a trend Census data shows began in August 2008. As Figure D shows, marginal gains have been reported each year since FY 14.

The difference between the continued increase in annuitants and a declining number of active members is driving a secular reduction in the overall ratio of actives to annuitants. In FY 17, this ratio dropped to 1.38, which marks the third consecutive year of more modest rate of decline, below three percent, following six consecutive years of steeper decline of three percent or greater. A low or declining ratio of actives to annuitants is not necessarily problematic for a public pension plan, because the typical public pension funding model features accumulation, during plan participants’ working years, of assets needed to fund retirement benefits, in anticipation of higher rates of payout as members retire.

When combined with an unfunded liability, however, a low or declining ratio of actives to annuitants can cause fiscal distress for a pension plan sponsor. An unfunded liability represents a shortfall in accumulated assets, and results in a higher cost of the plan above the normal cost, which is the cost of benefits earned each year. A lower ratio of actives to annuitants results in costs to amortize a plan’s unfunded liability being spread over a relatively smaller payroll base, which increases the cost of the plan as a percentage of employee payroll. Thus, although a declining active-annuitant ratio does not, by itself, pose an actuarial or financial problem, when combined with a poorly-funded plan, a low or declining ratio of actives to annuitants can result in higher required pension costs.

Figure D

On a market value basis, as of FY 17, systems in the Survey held a combined $3.47 trillion in assets. Figure E, which plots the fiscal year-end value of public pension funds in the Survey, reflects the result of market volatility in recent years, including the strong asset gains since 2009. As the aggregate market value of assets has grown by roughly $1.2 trillion over the past decade, funds in the Public Fund Survey also have paid out approximately $2.3 trillion in benefits.

Figure E


Figure F plots the combined revenues and expenditures of the systems in the Public Fund Survey. The green line reflects investment gains and losses, which vacillate as investment markets fluctuate. Blue bars indicate contributions, from employees and employers, and red bars show benefit payments. Because most plans pay out more each year in benefits than they receive in contributions, contributions are used to pay current benefits (see Figure H), and investment earnings accrue to pension trust funds. Pension trust funds are established for the sole purpose of paying benefits and funding administrative costs. The benefits paid by public retirement systems are paid from trust funds, not from state and local government operating budgets or general funds.

Growth in levels of contributions and benefits is mostly stable and predictable over time. Investment earnings, which comprise over 60 percent of public pension revenues over the past thirty years, vacillate, often appreciably, depending on market performance (see Figure L).

Figure F

Figure G plots the distribution of annual changes in payroll from FY 02 to FY 17 among plans in the survey for which this data is available. (The chart excludes plans in the Survey that are closed to new hires. Closed plans have no new, active members joining, and the number of annuitants grows each year as active members retire).

As the chart shows, the median change in payroll was either negative or in decline from FY 08 to FY 12, and has increased slowly but steadily compared to historical experience in subsequent years. At 2.77 percent, the FY 17 median change in payrolls is the highest rate of growth since FY 09 and marks the sixth consecutive year of increase. Negative or slow payroll growth reflects one or both of two basic factors: stagnant or declining employment levels, and modest salary growth among employees of state and local government. The experience of public pension plans is corroborated by information provided by the U.S. Bureau of Labor Statistics, indicating that annual growth in wages and salaries for employees of state and local government remained below two percent from 2009 until 2016, and has hovered around two percent since then. Employment levels among states and local governments likewise have been virtually flat in recent years after climbing out of the recent low point in around FY 13.

Payroll growth affects a pension plan actuarially because the long-term funding of a typical pension plan is based partly on expected annual increases in a pension plan’s payroll base. When a plan’s payroll grows at a rate less than expected, the base that is used to amortize the plan’s unfunded liability is smaller, meaning that the cost of amortizing the unfunded liability is larger. This situation is analogous to a mortgage, in which the mortgage-holder anticipates a growing salary to make her or his monthly mortgage payment. When salary growth does not materialize as anticipated, the cost of the mortgage payment as a percentage of expected income is higher.

Many pension plans in recent years have reduced their payroll growth assumption to reflect changing economic realities and expectations for future payroll growth. As a result, improving payroll growth experience and assumptions for future payroll growth are converging.

Figure G


Figure H plots median external cash flow as a percentage of assets since FY 01. External cash flow is the difference between a system’s revenue from contributions, and payouts for benefits and administrative expenses. External cash flow excludes investment gains and losses. Dividing a system’s cash flow into the market value of the system’s assets produces the measure of cash flow as a percentage of assets. A growing number of annuitants, combined with a low or negative rate of growth in active members, will result in a reduction in a retirement system’s external cash flow. Conversely, a growing asset base will offset a rate of negative cash flow.

Nearly all systems in the survey have an external cash flow that is negative, meaning they pay out each year more than they collect in contributions. A negative cash flow is not, by itself, an indication of financial or actuarial distress. A lower (more negative) cash flow may require the system’s assets to be managed more conservatively, with a larger allocation to more liquid assets in order to meet current benefit payroll requirements.

The median external cash flow in FY 17 is -2.8 percent, up from -2.9 percent in FY 16. Reductions in net external cash flow, such as those that occurred in FY 14 and FY 17, reflect the strong investment performance in those years, so that the rate of growth in the value of assets exceeded the relative growth in annual benefit payments.  


Figure H


Figures I and J reflect changes in median employee and employer contribution rates. Figure I includes active members and employers for active members who also participate in Social Security; Figure J includes those participants and their employers who do not participate in Social Security. These contribution rates apply to general employees and public school teachers; the rates do not reflect those for public safety workers and narrow employee groups, such as legislators, judges, etc.

Approximately 30 percent of employees of state and local government do not participate in Social Security, including approximately 40 percent of all public school teachers, and a majority to substantially all state and local government workers in seven states: Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio.

Nearly every state has made changes to its pension plan(s) since 2009; the most common change has been an increase in required employee contribution rates. This trend is reflected in Figure I, which shows the median employee rate for employees with Social Security increasing to 6.0 percent in FY 14, after a long period at 5.0 percent. Contribution rates for many non-Social Security employees have increased as well, though the median rate remains at 8.0 percent. Contribution rates among both sets of employers—in and out of Social Security—have increased considerably since inception of the survey. For the first time in many years, the median rate for Social Security-eligible employers declined in FY 17, to 12.8 percent from 13.1 percent in FY 16. FY 02 was at or near the all-time low point for employer contribution rates, following the strong investment gains experienced in the 1980s and 1990s.

      Figure I                                                                                            Figure J

Figure K illustrates the changes over time in two measures pertaining to required pension contributions. Governmental Accounting Standards Board Statements 25 and 27 defined the Annual Required Contribution (ARC) and prescribed its reporting by public pension plans and their sponsoring employers. Effective in FY 2014, public pension plans no longer are required by GASB to calculate and report an ARC. New GASB statements (67 and 68) require that, when an “actuarially determined contribution,” or ADC, is calculated, information about the ADC should be presented in the financial report of the retirement system and its sponsoring employer(s) (except in cases of agent plans). Per the new statements, an ADC is "a target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted." 

Figure K shows the average ARC/ADC received by all plans in the Survey; and the percentage of plans that received at least 90 percent of their ARC/ADC. The investment market losses of 2008-09 increased public pensions’ unfunded liabilities, resulting in higher required costs to amortize those liabilities. Meanwhile, the Great Recession decimated state and local government revenues, impairing, at least temporarily, employers’ ability to pay the higher costs. As the fiscal condition of states and local governments has improved, so has their collective ability and commitment to paying a larger portion of the required cost of employee pension benefits.

Implementing higher contributions, both from employees and employers, takes time. The effect of factors that change contribution rates, such as investment losses and changes in a plan’s actuarial experience, must first be measured through an actuarial valuation. In the case of most statewide plans, a legislature or other governing body must then approve new rates. This cycle, from actuarial event to approval and implementation of higher contribution rates, can take several years. Figure K indicates that efforts to fund public pensions are improving after a period of declining ARC/ADC effort during and after the Great Recession. The average ADC received in FY 17 was above 98 percent, and 82 percent of plans received more than 90 percent of their ADC, representing a continued restoration of funding discipline beginning in FY 12. More detailed information about public employers’ contribution efforts is presented in the NASRA issue brief, State and Local Government Contributions to Statewide Pension Plans.

Figure K

As shown in Figure L, the median investment return for plans with a FY-end date of June 30, 2017 (the FY-end date used by approximately three-fourths of the funds in the survey), was 12.4 percent; the return for plans whose fiscal year-end coincides with the calendar year (used by most other plans) was 15.3 percent.

Returns for some of the periods shown are below the assumed investment returns used by most public pension plans, a result largely of sub-par returns over the 10-year period ended 6/30/17 and 12/31/17, especially the sharp market decline of 2008-09. 


Figure L

Of all actuarial assumptions, a public pension plan’s investment return assumption has the greatest effect on the plan’s funding level and its projected long-term cost. This is because over time, a majority of revenues of a typical public pension fund come from investment earnings. Even a small change in a plan’s investment return assumption can impose a disproportionate impact on a plan’s funding level and cost.

Until FY 11, the median investment return assumption used by public pension plans was 8.0 percent. Since 2009, more than 90 percent of plans have reduced their assumed investment return, resulting in a reduction to the median return assumption to just below 7.4 percent. Figure M compares the distribution of investment return assumptions for each fiscal year since the inception of the Survey through the present. This chart illustrates the steady reduction in assumed rates of return, particularly since 2009, and the continuation of lower return assumptions beyond FY 17 and into FY 19.

Figure M


Figure N plots the average asset allocation of 90+ funds in the Public Fund Survey since its inception. The average allocation to public equities remains approximately 50 percent, while Fixed Income has dropped below 23 percent, its lowest allocation ever. Real Estate has grown incrementally to 7 percent, and the average allocation to Alternatives, which is composed primarily of private equity and hedge funds, continues to grow steadily, now exceeding 19 percent.

Figure N


See Also


Prepared by:

Keith Brainard and

Alex Brown