NCPERS 61st Annual Conference

1
NCPERS 61st Annual Conference ExhibitionTrends
in Public Sector Funds

• By Paul Zorn
• Director of Governmental Research
• Gabriel, Roeder, Smith Company

April 30, 2002
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Presentation Overview

• Public Pension Coordinating Council
• Survey Response
• Survey Trends
• Other Trends

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Public Pension Coordinating Council

• Consists of three national associations serving
  state and local retirement systems
• National Conference on Public Employee Retirement
  Systems
• National Council on Teacher Retirement
• National Association of State Retirement
  Administrators
• Key goals
• coordinate the legislative efforts of the member
  organizations,
• promote excellence in plan design and
  administration, and
• conduct periodic surveys of state and local
  retirement systems

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Survey Background

• Conducted biennially since 1991
• 2001 survey administered by Jennifer Harris,
  Executive Director of the Public Retirement
  Institute
• 2001 survey is the first year data were collected
  over the Internet, password protected access
• Survey reports and data available at Councils
  survey web site - http//ppcc.grsnet.com - open
  to the public

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Survey Response

• 152 public employee retirement systems
• 263 plans
• 9.3 million active members (67 of 13.9 million
  total)
• 1.6 trillion invested (68 of 2.3 trillion
  total)
• Broad distribution across geographic regions,
  system/plan size, groups of covered members, and
  administering jurisdictions
• Data current as of FYE 2000

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Key Trends

• Continued movement toward full funding
• Continued declines in annual required
  contributions
• Stable benefit levels overall, with small
  improvements in some benefit formulas
• Stable actuarial assumptions and methods
• Diversified investment portfolios
• Declines in 2000 investment returns, coincident
  w/ market
• Slight declines in employer contributions
  compared with annual required contributions

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Continued Movement Toward Full Funding
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Continued Movement Toward Full Funding
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Growth in State and Local Assets
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Declines in Annual Required Contributions
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Declines in Annual Required Contributions
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Stable Benefit Levels Overall, Small Increases
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Stable Benefit Levels Overall, Small Increases
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Stable Actuarial Assumptions
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Stable Use of Actuarial Methods
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Diversified Investment Portfolios
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Decline in 2000 Investment Returns
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Slight Decline in Employer Contributions as a
Percent of Annual Required Contributions
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Other Trends Rapid Increase in Retired
Population

• Between 2000 and 2050, the number of people age
  65 and over will increase from 35 million to 82
  million, or from 13 of the population to 20.
• Over the same period, the number of people
  between 55 and 64 will increase from 24 million
  to 44 million, or from 9 of the population to
  11.
• If similar rates are applicable in the public
  sector, state and local retirement plans will see
  an increase in their retiree/beneficiary
  populations from about 5 million now to 11
  million over the next 50 years.

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Rapid Increase in Retired Population
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Other Trends Liquidity Needs of Retirement Plans

• Many public plans are nearing or past the point
  where benefit payments exceed income from
  contributions
• Only one other source of additional funds
  investment income
• Sales of investment holding (especially equity
  holdings) may reduce a plans long-term
  investment return
• Significant concurrent sales of assets by plans
  could drive down investment prices

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Liquidity Needs of Retirement Plans
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Conclusions

• In general, state and local retirement systems
  are currently well funded and in strong financial
  health
• They face modest pressures resulting from
  investment volatility and, in very limited cases,
  employer contributions lower than the ARC
• Future pressures are likely due to the rapidly
  increasing number of retirees/beneficiaries and
  possibly increasing investment volatility