National Association of State Retirement Administrators

Public Fund Survey

Summary of Findings for FY 2018                                                                                                          December 2019

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 9.6 million annuitants (those receiving a regular benefit, including retirees, disabilitants and surviving beneficiaries). At the end of fiscal year 2018, systems in the Survey held combined assets of $3.62 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 also from actuarial valuations, benefits guides, system websites, and input from system representatives. In addition to the Center for Retirement Research at Boston College, the PPD is sponsored by NASRA and the Center for State and Local Government Excellence. This report, focusing on FY 18, 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 18 was 72.6 percent, up slightly from the prior year. The aggregate actuarial value of assets grew by 6.1 percent, from $3.29 trillion to $3.49 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. Combined liabilities grew from $4.58 trillion to $4.83 trillion, or 5.4 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 18 marks the seventh consecutive year that aggregate funding levels have been within a narrow range—between 71.9 and 73.5 percent. Many factors combine to affect a plan’s funding ratio. The complexity inherent in determining the funding level of a single plan is increased significantly when many plans--each of which is unique in various 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, and changes in investment return assumptions, charted on Figure L. A sharp downturn in equity markets at the end of 2018 affected not only one-year returns but also returns for the three- and five-year periods ended 12/31/18. Although equity markets returned to and exceeded their pre-decline levels quickly, because the downturn occurred just before the end of the calendar year, the drop affected funding levels for plans whose fiscal year ends 12/31.

The effect on funding levels of tepid investment returns for most plans over the last few years have been outweighed by reductions, made by many plans, in investment return assumptions and changes to mortality assumptions to reflect longer expected lifespans. See the NASRA issue brief on investment return assumptions

Funding levels can be affected by many factors, and certain actuarial events typically affect a plan’s funding level (and cost) more than others. For example, funding levels usually are affected by changes to its actuarial assumptions, its actual return on investments and other variations in the plan’s experience from what is expected.

Figure A


FY 18 individual funding levels of the 120 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 72.7 percent, and the range is 15.8 percent to 112.0 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 01. For a pension plan’s funding level to improve, its actuarial value of assets must grow faster than its liabilities. Once again in FY 18, at a median rate below 4.0 percent--the lowest rate of change in the history of this survey--liability growth remains notably lower than historical rates. This lower rate of growth in liabilities is likely due to several factors that, as with other factors, vary by plan, but generally includes 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 even lower were many plans not also reducing their investment return assumptions in recent years (see Figure L), an action that increases a plan’s liabilities. 

As with individual plans, the volatility in aggregate changes in asset values over this measurement period also is muted compared to actual changes in market values of assets. This is because most plans phase in investment gains and losses over several years, a process that is intended to smooth out the effects of 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 increased in FY 18, following five consecutive years of decline. The number of active members grew for the fourth consecutive year in FY 18, 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 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 number of active members is driving a long-term reduction in the overall ratio of actives to annuitants. In FY 18, this ratio dropped to 1.35, which marks the fourth 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 the spreading of 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 18, systems in the Survey held a combined $3.62 trillion in assets, an increase of 4.3 percent from FY 17. 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 funds in the Public Fund Survey has grown by roughly $1.52 trillion over the past decade, these same plans also have paid out approximately $2.2 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 (as shown in 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 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 over 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 18 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 in subsequent years compared to historical experience. 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 of public pension plans is corroborated by information provided by the U.S. Bureau of Labor Statistics, indicating that although state and local employment levels have accelerated since FY 14, annual growth in wages and salaries for employees of state and local government have only recently broken above two percent following seven years of growth below two percent. These trends suggest that while states and local governments have been hiring new employees, the rate of hiring of new, generally lower-salary workers, has thus far not been enough to offset increasing numbers of retiring older, generally higher-paid workers.

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 18 experience marks the fifth consecutive year of median payroll growth at a rate of between 2.0 and 2.68 percent, following four consecutive years of growth below one percent.


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 declining 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 be a factor contributing 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.

The median external cash flow in FY 18 is -2.9 percent, virtually unchanged from the prior year.

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 contribution rate for employees participating in Social Security increasing to 6.0 percent in FY 14, after an extended period at 5.0 percent. Contribution rates for many non-Social Security-participating 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 the inception of the survey, due primarily to larger unfunded pension liabilities. These larger unfunded liabilities are attributable to various factors, depending on the plan, but often include lower investment return assumptions. Higher employer contribution rates for some plans also are due to a strengthened effort by some employers to contribute all or more of their 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, 2018 (the FY-end date used by approximately three-fourths of the funds in the survey), was 8.2 percent; the return for plans whose fiscal year-end coincides with the calendar year (used by most other plans) was negative 4.1 percent. This decline resulted largely from a sharp drop in equity values during the final quarter of 2018, evidenced by a decline of more than 13 percent in the S&P 500 index during this period. By the end of the first quarter of 2019, the index had made up all of its losses in the preceding quarter, but the effect of this temporary drop is reflected in the returns and funding level of plans with a FY-end date of 12/31.

Returns for the 10-year period ended 12/31/18 reflect the first 10-year period that does not include any of the losses experienced in the 2008-09 market decline.

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. This has resulted in a reduction in the median return assumption to 7.25 percent. 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, and the continuation of lower return assumptions beyond FY 18 and into FY 19.

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 remains approximately 50 percent, while Fixed Income remains below 25 percent for the sixth consecutive year. Sustained low-interest rates have caused most public pension funds to seek higher returns in other asset classes. One of those asset classes is Real Estate, the allocation to which has grown steadily in recent years and remained above 7 percent for the second consecutive year. At nearly 19 percent, the average allocation to Alternatives, composed primarily of private equity and hedge funds, also continues to grow steadily.

Figure M


See Also


Prepared by:

Keith Brainard and

Alex Brown