A new study identifies common elements of public sector defined benefit pension plans that remained well-funded despite two severe economic downturns.
This new research report examines selected statewide public pension plans to identify six features that enabled those plans to remain sustainable and affordable:
- Employer pension contributions that pay the full amount of the annual required contribution, and that maintain stability in the contribution rate over time;
- Employee contributions to help share in the cost of the plan;
- Benefit improvements, such as multiplier increases, that are actuarially valued before adoption and properly funded upon adoption;
- Cost of living adjustments (COLAs) that are granted responsibly, for example through an ad hoc COLA that is amortized quickly, or an automatic COLA that is capped at a modest level;
- “Anti-spiking” measures that ensure actuarial integrity and transparency in pension benefit determination; and
- Economic actuarial assumptions, including both the discount rate and inflation rate, that can reasonably be expected to be achieved over the long term.
The report was led by Dr. Jun Peng, associate professor at the University of Arizona, and co-authored by Ilana Boivie, an economist and NIRS director of programs.
The study was conducted via a comprehensive analysis of the funding policy, benefit design and economic assumptions for the following six public pension plans selected for analysis:
- Delaware State Employees Pension Plan
- Idaho Public Employee Retirement Fund
- Illinois Municipal Retirement Fund
- New York State Teachers’ Retirement System
- North Carolina Teachers & State Employees Retirement System
- Teacher Retirement System of Texas