National Association of State Retirement Administrators

Public Fund Survey

Summary of Findings for FY 2020                                                                                                         November 2021

About the Public Fund Survey

The Public Fund Survey is an online compendium of key characteristics and trends affecting  most of the nation’s largest public retirement systems. The Survey is provided 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 9.9 million annuitants (those receiving a regular benefit, including retirees, disabilitants and surviving beneficiaries). At the end of fiscal year 2020, systems in the Survey held combined assets of $3.86 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 (PPD), an online, interactive resource containing public retirement system information culled chiefly from public retirement system annual financial reports and actuarial valuations. In addition to the Center for Retirement Research at Boston College, the PPD is sponsored also by NASRA, MissionSquare Research Institute, and the Government Finance Officers Association. This report, focusing on FY 20, uses graphs and narrative to illustrate and describe changes in selected elements of public retirement systems and the pension plans and funds they oversee. 

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.


A Prospective Look

Although this Summary of Findings is, by definition, retrospective, the unusual level of economic and investment market volatility in 2020 that was triggered by the COVID-19 pandemic, and the subsequent recovery, warrants an acknowledgement of these events and a brief discussion of their actual and possible effects on public pension funding conditions. 

2020, a period that encompasses part or all of FY 20 for public retirement systems, was an exceptionally volatile year for capital markets: after dropping by more than one-third from February to March, the S&P 500 rose from its low point on March 23, 2020 by more than 65 percent at year’s end. For the year ended June 30, 2021, which is the end of fiscal year 2021 for a majority of plans in the Public Fund Survey, the median public pension fund investment return was 25.8 percent, according to Callan. In the absence of a dramatic capital markets decline in the near future, this exceptionally strong investment performance will lift public pension funding levels in the coming years as investment gains are recognized in actuarial valuations. 

The 2020 recession was relatively brief and mild compared to previous recessions. Although aggregate state and local tax revenues declined by over 15 percent in the second quarter of 2020, and again by nearly 9 percent in the third quarter of 2020, annualized state and local revenue growth as of the first quarter of 2021 exceeded nine percent, indicating that state and local governments avoided the catastrophic revenue outcomes predicted in the early days of the pandemic. 

In addition, combined state and local government employment declined sharply following the onset of the pandemic in February 2020. Although private sector employment has recovered most of its pandemic losses, state and local government employment levels remain well below their pre-pandemic levels. This reduction in public sector employment potentially will affect public pension payroll growth and might have other actuarial effects on public pension plans. As the discussion states accompanying Figure G, below, a public pension plan’s rate of payroll growth affects the cost of the plan as a percentage of payroll: a reduction in the number of employees who are participating in a plan, and wage growth that is significantly below a plan’s actuarially assumed level, will likely increase the cost of the plan as a percentage of payroll. The COVID-19 pandemic produced a sudden stop and reversal to recent growth in state and local employment and wages, with employment (declining) and wage growth (improving) trending in opposite directions at the time of this publication. 

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 20 was 72.8 percent, up slightly from the prior year. The aggregate actuarial value of assets grew by 5.2 percent, from $3.57 trillion to $3.75 trillion. This value reflects changes based on the timeframes most pension plans use to phase in investment gains and losses, a calculation also known as smoothing. (A few plans use their market value of assets and do not phase in investment gains and losses) Combined liabilities grew from $4.94 trillion to $5.15 trillion, or 4.3 percent. Liabilities fluctuate as a result of four factors: a) because liabilities are a present value, they increase at a rate of interest equal to the prior year’s discount rate; b) new benefit accruals resulting from active participants accruing an additional year of service credit; c) payment of benefits to retired participants (which reduces liabilities); and d) changes in actuarial assumptions and actuarial experience that differs from assumptions.

FY 20 marks the ninth consecutive year that aggregate funding levels have remained within a narrow range—between 71.8 and 73.7 percent. Many factors combine to affect a plan’s funding ratio. The complexity inherent in determining the funding level of a single plan increases significantly when many plans—each unique in multiple ways regarding its combination of actuarial experience, methods, and assumptions—is added. Primary factors typically affecting the aggregate funding level include pension funds’ actual investment returns, illustrated by Figure K, below, and changes in investment return assumptions, charted on Figure L. Other variations in a plan’s experience from what is expected also can affect its actuarial funding level.

For the decade ended in FY 20, public pension fund investment returns have been tepid, but improved noticeably in FY 20, especially for plans with a FY-end date of December 31. Nearly every plan has reduced its most consequential actuarial assumption—the investment return assumption—during the past 10 years, a change that reduces the plan’s funding level and increases its cost. Many plans also have adjusted other actuarial assumptions, including mortality assumptions to reflect expected longer lives. Like a lower investment return assumption, improved mortality assumptions also results in a reduced plan funding level and higher cost, as plan participants are projected to receive benefits for a longer period of time. 
See the NASRA issue brief on investment return assumptions

Figure A


FY 20 funding levels of the 119 plans in the Survey are depicted in Figure B. The relative 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 72.8 percent, and the range is 17 percent to 116.0 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 02. For a pension plan’s funding level to improve, its actuarial value of assets must grow faster than its liabilities. At a median rate below 4.0 percent for the third consecutive year, liability growth remains below historical rates and extends a trend of subdued annual liability growth that began following the Great Recession. Low liability growth generally is due to several factors that vary by plan, but typically includes actual inflation below expectations, plan maturity (i.e., increasing number of annuitants relative to actives), slow rates of employment (and payroll) growth, and the effects of many reforms (chiefly reductions) in pension benefits enacted in recent years. Rates of liability growth would be even lower were many plans not also reducing their investment return assumptions (see Figure L), an action that increases a plan’s liabilities. 

As with individual plans, the volatility in changes in aggregate asset values also is muted compared to changes in market values of assets, as most plans phase in investment gains and losses over several years, a process designed to smooth out the effects of market volatility. Approximately two-thirds of plans in the survey smooth their investment gains and losses over five years, and another 17 percent smooth over four years. The remaining plans phase in gains and losses over periods than range from zero, meaning no smoothing and using only the market value of assets, to 10 years.

Because five years is the predominant period used by plans to recognize investment gains and losses, a plan’s five-year investment return (as shown in Figure K), relative to its investment return assumption, can be instructive in understanding the effect of market performance on a plan’s funding level. This is because a plan’s actual investment performance has a relatively large impact on its funding condition. In the case of a theoretical plan with an investment return assumption of 7.0% and an actual annualized five-year investment return of 6.0%, assuming the plan achieved its other actuarial assumptions, that plan’s funding level is likely to be lower as a result of its actual investment return underperforming its assumed investment return.


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.

As shown in Figure D, the median rate of increase in annuitants among systems in the Survey continued its slower trend, declining in FY 20 to its lowest level in the measurement period. Each year since FY 16, median growth in the number of annuitants has been below 3.5 percent, following a six-year period of growth above 3.5 percent. The number of active members grew for the sixth consecutive year in FY 20, 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 an increase in the number of state and local government employees, a trend Census data shows began in FY 14 and continued through early 2020 before the pandemic-induced declines. As Figure D shows, marginal gains in the number of active members have been reported each year since FY 14.

The difference between the continued increase in annuitants and a declining or slowly rising number of active members is driving a long-term reduction in the overall ratio of actives to annuitants, though, consistent with the trends described above, this is occurring at a slower rate than prior years. In FY 20, this ratio dropped to 1.30, which marks the fifth consecutive year of a 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. This is 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 financial distress for a pension plan sponsor. An unfunded liability represents a shortfall in accumulated assets and results in a 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 applying costs to amortize a plan’s unfunded liability 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 20, systems in the Survey held a combined $3.86 trillion in assets, an increase of 1.8 percent from FY 19. 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 in most years since 2009. As the aggregate market value of funds in the Public Fund Survey has grown by roughly $1.24 trillion over the past decade, these same plans also have paid out approximately $2.4 trillion in benefits. Collectively, the portion of assets held by the systems in the Survey represents 86 percent of the total FY 20 public pension assets identified by the U.S. Census Bureau.

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 (as shown in Figure H), while most 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 these 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 60 percent of public pension revenues over the past thirty years, vacillate, often appreciably, depending on market performance (see Figure K).


Figure F

Figure G plots the distribution of the median annual change in payroll from FY 02 to FY 20 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 or terminate.)

As the chart shows, the median change in payroll was either negative or in decline from the prior year from FY 08 to FY 12, and has increased slowly but steadily since, before accelerating to a more typical level beginning in FY 19. The median change in payroll declined slightly in FY 20, but remains above three percent. 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 payroll experience pattern of public pension plans following the Great Recession is corroborated by information provided by the U.S. Bureau of Labor Statistics, indicating that state and local employment levels stagnated before accelerating since FY 14, while annual growth in wages and salaries for employees of state and local government increased at a slower pace, remaining below two percent for seven years until FY 16. FY 19 saw the highest level of state and local employment growth since FY 07, and annualized state and local employee wage growth reached 2.5 percent in FY 19, which corresponds to median FY 19 public pension payroll growth above three percent for the first time since FY 09. Although state and local employment and wage growth declined in FY 20, median public pension payroll growth remained above three percent. 
Payroll growth affects a pension plan actuarially because the long-term funding of a typical pension plan is based partly on expected growth 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. The FY 20 experience marks the second consecutive year of median payroll growth above three percent, after failing to reach that level from FY 10 to FY 18.


Figure G


Figure H plots the 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 slow or negative 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. Contributions made below the actuarially recommended rate can also contribute to a plan’s 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. Negative cash flow is not, by itself, an indication of financial or actuarial distress: the purpose of accumulating assets is to eventually pay them out as benefits. As a system matures, i.e., as its members age, the system will inevitably pay out in benefits relatively more compared to a less mature, younger system. 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 to meet current benefit payroll requirements. Indeed, in 2018, the Kentucky Retirement System reduced the investment return assumption of one of its plans—the Kentucky Employees’ Retirement System—to 5.25 percent, because the plan’s funding level, which is below 20 percent, requires the fund to maintain a relatively large portion of its assets in more liquid securities that do not generate a significant investment return.

The median external cash flow in FY 20 is -2.5 percent, continuing a trend of external cash flow between -2.5 and -3.0 percent, which has occurred in all but one year of the last decade.


Figure H


Figures I and J reflect changes in median employee and employer contribution rates. Figure I includes active members and employers for participants 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 one-fourth 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 contribution rate for employees participating in Social Security increasing to 6.25 percent in FY 20, after several years at 6.0 percent. The median contribution rates for non-Social Security-participating employees also rose in FY 20, reaching 9.0 percent following many years at 8.0 percent. Contribution rates among both sets of employers—in and out of Social Security—have increased considerably since the inception of the survey. This increase reflects several factors, including larger unfunded pension liabilities and, more recently, a strengthened effort among many employers to increase their contribution effort to pay a greater share of the actuarially determined contribution. FY 02, the first year of the measurement period, 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

As shown in Figure K, the median investment return for plans with a FY-end date of June 30, 2020 (the FY-end date used by approximately three-fourths of the funds in the survey), was 3.3 percent; the return for plans whose fiscal year-end coincides with the calendar year (used by most other plans) was 11.7 percent. As discussed in Figure C, above, because most plans phase in, or smooth, their investment gains and losses over several years (five years for most plans), returns over periods of four or five years are more consequential to funding levels than the return of only the most recent year. 

The median return for plans with a FY-end date of 12/31 provides a glimpse of investment returns beyond FY 20. The sharp rise in global equity markets that began in March 2020 continued well into 2021, and public pension fund investment returns for the FY-ended 6/30/21 will reflect those strong returns. Barring a sharp decline in equity values, these investment gains will improve public pension funding levels in FY 21 and beyond.


Figure K

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.

From the beginning of this survey (and for several years preceding this survey), until FY 11, the median investment return assumption used by public pension plans was 8.0 percent. Following the sharp decline in global capital markets in 2008-09 and the subsequent decline in interest rates and projected returns on most major asset classes, nearly every plan in the survey has reduced its assumed investment return, some more than once. This trend has resulted in a reduction in further decline to the median return assumption to 7.25 percent in FY 20. Figure L 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.

When a plan reduces its investment return assumption, its projected liabilities increase, which also increases the plan’s cost. The extended period of reductions in the investment return assumption has created a strong headwind for pension plans’ efforts to improve their funding level: even as benefit levels have been reduced and contribution rates increased, funding levels for many plans have continued to decline or stagnated due partly or entirely to lower investment return assumptions.


Figure L


Figure M plots the average asset allocation of 90+ funds in the Public Fund Survey since its inception. The average allocation to public equities has steadily declined since the major drop in global capital markets in 2008-09. At 45.6 percent in FY 20, the average allocation to equities is the lowest since the Survey began, while the average allocation to Fixed Income declined marginally to 23.4 percent. In addition to a long-term effort toward more diversified portfolios, sustained low-interest rates have caused most public pension funds to reduce allocations to fixed income in lieu of asset classes expected to produce higher returns, such as Real Estate and other types of Alternative investments. The average allocation to Real Estate rose incrementally in FY 20 to 7.6 percent, its highest level ever, and the allocation to other types of Alternatives, chiefly private equity and hedge funds, breached the 20 percent threshold for the first time ever.  

Figure M


See Also


Prepared by:

Keith Brainard and

Alex Brown