New Research Examines the Impact of the Great Recession on U.S. Public Pension Plans

News provided by

National Institute on Retirement Security

Oct 05, 2022, 11:38 ET

The Majority of Plans Recovered Assets Within Six Years and Have Adapted in Ways that Strengthen Long-Term Sustainability

National Institute on Retirement Security to Host Webinar on October 13^th to Review Report Findings

WASHINGTON, Oct. 5, 2022 /PRNewswire/ -- A new report finds that state and local government retirement systems on the whole successfully navigated the 2007 to 2009 Global Financial Crisis. Moreover, public retirement systems across the nation have adapted in the years since the recession by taking actions to ensure continued long-term resiliency.

These findings are detailed in a new study released today by the National Institute on Retirement Security (NIRS), Examining the Experiences of Public Pension Plans Since the Great Recession. The report is authored by Tyler Bond, NIRS Research Manager, Dan Doonan, NIRS Executive Director, Todd Tauzer, Segal Vice President and Actuary, and Ronald Temple, Lazard Managing Director and Co-Head of Multi-Asset and Head of U.S. Equity.

Download the research here.

Register here for a webinar on Thursday, October 13, 2022, at 2:00 PM ET for a review of the findings with the report authors.

"No investor was immune from the devastating effects of the Great Recession, including public pension plans," Doonan said. "But despite the global turmoil, pension plans didn't miss a beat delivering promised retirement income to retirees. In fact, more than $3.8 trillion in benefits have been paid since 2007. What's more, this retrospective analysis shows that most public sector retirement systems recovered their pre-recession asset levels within six years while simultaneously paying benefits."

"Furthermore, we've seen a consistent trend among public plans to adapt to a changing environment with their assumptions and investments," Doonan said. "And, plan funding policies also have adapted significantly to pay down outstanding liabilities more quickly, as well as improved contribution discipline during the recovery. These changes, combined with the substantial growth in public plan assets during the past decade, attest to the strength and longevity of public pension plans."

The report's key findings are as follows:

The majority of public pension plans recovered their pre- recession asset levels within six years, while continuing to pay over a trillion dollars in benefits. In recent years, public plans have reported record-high asset levels.
Discount rates, or the assumed rate of return on investments, have broadly decreased from eight to seven percent for the median public pension plan, based on actuarial and financial forecasts of future market returns.
Generational mortality tables, possible today with more advanced financial modeling software, have been broadly adopted by nearly all large public plans and future longevity improvements are now incorporated into standard financial projections.
Many public plans have shortened amortization periods, or the period of time required to pay off an unfunded actuarial accrued liability, to align with evolving actuarial best practices. Tightening amortization periods, akin to paying off a mortgage more quickly, has had the effect of increasing short- term costs. In the long run, plans and stakeholders will benefit.
The intense focus on public plan investment programs since the Great Recession misses the more important structural changes that generally have had a larger impact on plan finances and the resources necessary for retirement security.
Plans have adjusted strategic asset allocations in response to market conditions. With less exposure to public equities and fixed income, plans increased exposure to real estate, private equity, and hedge funds.
Professionally managed public defined benefit plans rebalance investments during volatile times and avoid the behavioral drag observed in retail investment.

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS' diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org. Follow NIRS on Twitter @NIRSonline.

SOURCE National Institute on Retirement Security