PLANSPONSOR - November/December 2024 - 12

UPFRONT
Public DB Plans Embrace Private Alts
System-where he served as deputy executive
director and chief benefits officer,
respectively-have all been dealing with
funding level challenges, Roth said.
Leola Ross, deputy chief investment
officer and head of environmental, social
and governance at Seattle City Employees
Retirement System, said SCERS has been
investing more diversely, and globally, in
private markets-expanding from U.S.
core real estate to non-core real estate in
Asia and Europe, plus infrastructure. More
recently, Ross said, SCERS has allocated
funds to private credit and venture capital.
Funded Status
While public pension fund assets have
more than doubled since 2010, and
employers contribute more to their plans,
overall funded status has remained relatively
flat, averaging about 75%, Bond said.
A primary reason for the stagnancy
is plans making changes to their actuarial
assumptions-the average discount rate
dropped to 7% from 8%-and more plans
adopting generational mortality, he said.
" Plans have invested a lot in buying more
conservative assumptions, and that should
be to the benefit of the plan and various
stakeholders. But that comes at a cost. "
SCERS' funded status has increased
WITH a growing incentive to invest in
private markets, public pension funds have
shifted their asset allocations dramatically
over the years, said a panel of experts at the
Council of Institutional Investors' 2024
Fall Conference.
According to Tyler Bond, research
director at the National Institute on
Retirement Security, before the global
financial crisis of 2008 and 2009, public
equities composed about 60% of asset allocations
for public defined benefit plans; by
2021, they were less than half. Allocations
to fixed income also dropped then, and
Bond said he saw significant movement to
private equity, private credit, real estate and
other alternative assets.
Across state and municipal pension
plans, over the past 30 years, NIRS found
that 61.4% of pension revenue came from
investment earnings.
" It matters how public pension plans
are investing, because they rely on their
investment returns to generate such a
substantial portion of revenue, " Bond said.
" If [the plan] is not getting the revenue [it]
needs from investment earnings, either
the members or the taxpayers-or both-
have future revenue to make up for. "
Andrew Roth, CEO and executive
director of Colorado Public Employees'
Retirement Association, said the $61.5
billion pension fund is allocating more
to private equity, due to the lower returns
from fixed income and bonds.
Colorado PERA, as well as the
Teacher Retirement System of Texas and
the California State Teachers' Retirement
12 PLANSPONSOR.COM November - December 2024 Art by Antonio Uve
in recent years, to around 75% or 80%,
depending on the actuarial measure, Ross
said. " The notion of fundedness doesn't
get talked about enough. We actually now
measure fundedness volatility as part of
our asset allocation strategy. "
SCERS'
investment
strategies cited
above, along with diversification away from
some of the core bond allocations, have
lowered the plan's volatility and improved
its funded status, Ross said, noting that
SCERS has been in the top quartile for
pension funds in terms of returns.
Colorado PERA currently has a
funded status of about 69.6%, Roth
said, adding that the tightening of actuarial
assumptions has been a " real hit " to
the plan's funded status, and the plan is
" playing catch-up. " -Remy Samuels
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PLANSPONSOR - November/December 2024

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