Year of Publication



Martin School of Public Policy and Administration

Date Available


Executive Summary

By almost all accounts, the fiscal health and stability of the United States public retirement system at all levels is in peril. Collectively, local and state public retirement systems are underfunded at a rate of $700 billion as a low estimate to $3 trillion as a higher estimate. While plenty of research has been conducted to identify the reasons that programs are underfunded, the system would be best served if more attention were paid to identifying program characteristics that improve performance. In turn, these characteristics could be evaluated and implemented if not already present. If programs do not want to collapse and governments do not want to cut services to pay for retirement benefits, further research is needed to improve performance and this report offers one such method of evaluation.

By utilizing some of the most recent financial data available, this report attempts to identify program governance characteristics that positively impact pension performance. Performance is measured using the funded ratio of a program or the measure of current assets compared to liabilities. The tested model is a combination of three main governance characteristic variables (the presence of an investment council, the total number of program board members, and the percentage of board members that are program beneficiaries) and several other independent variables such as total program members. The model has been tested using an OLS and Mixed Effects regression analysis.

The regression estimates provide interesting but inconsistent results. In regards to the governance characteristics, only the presence of an investment council has been shown to be significant over both models. The presence of an investment council raises a programs funded ratio by more than 7 percentage points in both models. In regards to the remaining independent variables, of particular note are the estimates on the availability of Social Security coverage to program participants. In the OLS analysis, the estimated impact is a negative 0.411 percentage points while the Mixed Effects impact is 2.211 percentage points. Although neither is statistically significant, the divergent nature of the estimate should be something that is worth future attention.

By pooling the results over the two models, it is the recommendation of this author that programs at least consider implementing an investment council for their respective programs for the reasons outlined above. Programs should also consider limiting their increases to employee contribution rates as current analysis has shown that a roughly one percent increase in employee contribution rates decreases the funded ratio by one percent. By implementing the appropriate board and program characteristics, public retirement systems at all levels could begin to slow or correct the underfunded problem that has been growing in recent years.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.