The pension objective is to secure benefits in a cost-efficient manner.
New York city employees retirement system (NYCERS) defines the pension objective well in the first sentence of their actuarial report:
“The financial objective of the New York City Employees Retirement System (the “Plan”) is to fund members’ retirement benefits during their active service and to establish employer normal contribution rates that, expressed as a percentage of active member annualized covered payroll, would remain approximately level over the future working lifetimes of those active members and, together with member contributions and investment income, would ultimately be sufficient to accumulate assets to pay benefits when due”.
As NYCERS attests, the true pension objective is to fund benefits such that contribution costs are stable. Unfortunately, since 1999, most defined benefit pensions have been hard hit by spiking contribution costs, which are perhaps 10x higher than 1999 (NYCERS has actually witnessed a shocking 43x higher expense). Such increased contribution costs have become the pension crisis that Ryan ALM has documented and monitored for decades. Reducing and stabilizing contribution costs would be a much-needed solution to this pension dilemma.
We will be producing a series of blog posts on how one can reduce pension costs. In the meantime, if you can’t wait to get the answers you can always reach out to us (firstname.lastname@example.org).