During 1991 and 1992, state and local government employee retirement systems were surveyed on their various activities. The surveys were conducted by the Public Pension Coordinating Council, a consortium of four national associations whose members are directly involved in the administration of public employee retirement systems: the Government Finance Officers Association, the National Association of State Retirement Administrators, the National Conference on Public Employee Retirement Systems and the National Council on Teacher Retirement. The surveys obtained in-depth information about the current practices of public employee retirement systems regarding administration, membership, benefits, contributions, funding, investments and reporting.
In order to properly analyze trends between the two survey years, the respondents providing information for both years were selected and trend analysis was carried out on their responses. In the following discussion, these selected cases are referred to as "matched respondents." This process ensures that the comparisons isolate actual trends rather than differences in the characteristics of the respondents between the two surveys. Highlights of the trend analysis on the matched systems include the following.
* The pension benefit obligation (PBO) rose rapidly at a rate of 11.5 percent between 1990 and 1991. The actuarial value of assets (AVA) also rose rapidly at a rate of 9.8 percent but not fast enough to keep the unfunded PBO from increasing.
* The ratio of the AVA to PBO fell marginally from 88 percent in 1990 to 86 percent in 1991.
* Employer contributions as a percent of covered payroll increased from 12.08 percent in 1990 to 12.75 percent in 1991. Employee contributions also grew as a percent of pay, from 5.43 percent to 5.63 percent.
* The ratio of actual employer contributions to actuarially determined employer contributions rose from an average of 83 percent in 1990 to 86 percent in 1991.
* The annual rate of return on system investments increased dramatically from an average of 7.72 percent in 1990 to 14.12 percent in 1991. However, the annualized five-year rate of return fell from 11.56 percent to 11.11 percent.
* The interest rate assumption used in actuarial analysis grew slightly from 7.76 percent in 1990 to 7.81 percent. Assumptions regarding total annual salary increases grew from 5.96 percent to 6.13 percent.
* Post-retirement cost-of-living adjustments (COLAs) fell, on average, from 3.59 percent of benefits in 1990 to 3.39 percent in 1991. However, the number of plans providing COLAs increased by 9 percent.
The PPCC's 1992 survey had a substantial increase in the number of respondents over the previous year's survey. In 1991, 202 public employee retirement systems (PERS) responded to the PPCC's survey, representing 273 retirement plans covering 79 percent of the 11.7 million active members reported by the U.S. Bureau of the Census for FY 1990. In 1992, 325 PERS responded to the PPCC's survey, representing 476 retirement plans covering 83 percent of the 12.8 million active members reported by the Census for FY 1991.(1)
Generally, the new respondents represent smaller systems administered by city or county governments. The percent of systems with less than 1,000 active members grew from 32 percent of the respondents in 1991 to 42 percent in 1992, and the percent of systems administered by a city or county jurisdiction grew from 37 percent in 1991 to 46 percent in 1992. This growth in the number of smaller, local systems is a welcome addition to the survey response. While the majority of PERS membership and assets are concentrated in the large, state-administered systems, greater representation of the smaller systems makes the survey more useful.
Obligations, Liabilities and Plan Funding
As a normal part of the pension process, public employee retirement systems accumulate substantial obligations as a result of their members' service. …