Administration January 18, 2017

Public Pensions Working to Improve Plans

Lowering costs, reducing return assumptions and experiencing healthy returns is putting a positive spin on public retirement plans’ future.
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Public retirement systems are improving cost-efficiency, increasing funding ratios, and fine-tuning benefits to strengthen their capacity to serve retired public servants for years to come, according to an annual study by the National Conference on Public Employee Retirement Systems.

During 2016, pension funds squeezed down the cost of administering funds and paying investment managers to 56 basis points, or 56 cents per $100 invested, versus 60 basis points in 2015. This is well below the average fee of 68 basis points for stock mutual funds and 77 basis points average for hybrid mutual funds, which include stocks and bonds. “By controlling fees, pension funds continue to demonstrate that they can provide a higher level of benefits to members than most mutual funds do,” says Hank H. Kim, executive director and chief counsel of NCPERS.

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Average funding levels—the value of the assets in the pension plan divided by an actuarial measure of the pension obligation—climbed for the third year in a row. Funding levels reached 76.2% in 2016, up from 74.1% in 2015 and 71.5% in 2014. Even as interest rates began to climb, funds continued to tighten assumptions.  Nearly 40% of responding funds said they have reduced their actuarial assumed rate of return, and nearly 30% more said they are considering doing so in the future.

Funds also continued to put pressure on benefits. More than 30% of respondents said they have increased employee contributions and raised benefit age or service requirements.

Funds experienced healthy three-year, five-year and 20-year returns during 2016, close to or exceeding 8%.  Aggregated 10-year returns came in at 6.2%, while one-year returns averaged 1.7%. (The one-year figure ticked up to 2.4% for plans with fiscal years ending in December.)  “All signs point toward continued improvement in increasing public retirement systems’ funded status,” Kim says.

The 2016 NCPERS Public Retirement Systems Study draws on responses from 159 state, local and provincial government pension funds with more than 10 million active and retired memberships and assets exceeding $1.5 trillion. The majority (77%) were local pension funds, while 23% were state pension funds.
Data and Research January 18, 2017

Pay Gap Means Women Need to Save More for Retirement

While the gender pay gap is better in some states than others, it still indicates women need to save more than men, according to a NerdWallet analysis.
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The average American woman must save $1.25 for every $1 a man invests in retirement savings to build an equivalent nest egg, a NerdWallet data analysis shows.

For every dollar men earn, women in the U.S. make 80 cents on average, according to the latest available data. That wage gap can lead to an even bigger divide down the road when it comes to retirement savings in a 401(k), NerdWallet says.

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The company looked at U.S. Census Bureau data from 2007 and 2015 and found Rhode Island saw the earnings difference narrow the most. There, women have to save for retirement at a rate of $1.17 for every $1 men put away. In Oklahoma—the bottom-ranking state for wage gap improvement during the same time period—women planning for retirement would need to sock away $1.37 for every $1 men save.

NerdWallet notes this doesn’t mean women need to move. “Research suggests the issue isn’t so much that a woman working as a bank teller in any given state makes less than her male colleague at the next window; rather, it’s that the odds are greater that he will rise to bank manager someday,” it says.

“The wage gap means women need to save more of every dollar they earn to accumulate the same amount of money as men,” says Arielle O’Shea, NerdWallet’s investing and retirement specialist. “That’s difficult to achieve, particularly when women spend more time out of the workforce to raise children or care for family members. Retirement savings may be put on hold during those times, and employer matching dollars are left on the table.”

More of the analysis is available here.

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