This report finds that state and local government retirement systems on the whole successfully navigated the 2007 to 2009 Global Financial Crisis. Moreover, public retirement systems across the nation have adapted in the years since the recession by taking actions to ensure continued long-term resiliency.
Examining the Experiences of Public Pension Plans Since the Great Recession is authored by Tyler Bond, NIRS Research Manager, Dan Doonan, NIRS Executive Director, Todd Tauzer, Segal Vice President and Actuary, and Ronald Temple, Lazard Managing Director and Co-Head of Multi-Asset and Head of U.S. Equity.
The report finds:
The majority of public pension plans recovered their pre- recession asset levels within six years, while continuing to pay over a trillion dollars in benefits. In recent years, public plans have reported record-high asset levels.
Discount rates, or the assumed rate of return on investments, have broadly decreased from eight to seven percent for the median public pension plan, based on actuarial and financial forecasts of future market returns.
Generational mortality tables, possible today with more advanced financial modeling software, have been broadly adopted by nearly all large public plans and future longevity improvements are now incorporated into standard financial projections.
Many public plans have shortened amortization periods, or the period of time required to pay off an unfunded actuarial accrued liability, to align with evolving actuarial best practices. Tightening amortization periods, akin to paying off a mortgage more quickly, has had the effect of increasing short- term costs. In the long run, plans and stakeholders will benefit.
The intense focus on public plan investment programs since the Great Recession misses the more important structural changes that generally have had a larger impact on plan finances and the resources necessary for retirement security.
Plans have adjusted strategic asset allocations in response to market conditions. With less exposure to public equities and fixed income, plans increased exposure to real estate, private equity, and hedge funds.
Professionally managed public defined benefit plans rebalance investments during volatile times and avoid the behavioral drag observed in retail investment.
Author(s): Dan Doonan, Ron Temple, Todd Tauzer, Tyler Bond
In a new INET working paper, we examine inequality in employment outcomes across social groups during recessions. We take a comparative perspective, studying results from two recent and severe US recessions: the “Great Recession” linked with the global financial crisis beginning in late 2007 and the “lockdown” recession caused by the COVID-19 pandemic. Comparing these two events presents an interesting case study to explore inequality in recessions.
The severity of a recession depends both on how much employment declines and the persistence of those declines. The primary job-months lost statistic in our analysis is designed to capture both of these dimensions. This measure simply adds up the difference between actual employment and pre-recession employment over the recession months. For example, if the pre-recession employment trend for a demographic group was flat and a person in that group lost a job in April but went back to work in July, that person’s experience would add three job-months lost to the total in their demographic group.
Author(s): Steven Fazzari, Ella Needler
Publication Date: 19 April 2021
Publication Site: Institute for New Economic Thinking
We estimate the long-term effects of experiencing high levels of job demands on the mortality and aging of CEOs. The estimation exploits variation in takeover protection and industry crises. First, using hand-collected data on the dates of birth and death for 1,605 CEOs of large, publicly-listed U.S. firms, we estimate the resulting changes in mortality. The hazard estimates indicate that CEOs’ lifespan increases by two years when insulated from market discipline via anti-takeover laws, and decreases by 1.5 years in response to an industry-wide downturn. Second, we apply neural-network based machine-learning techniques to assess visible signs of aging in pictures of CEOs. We estimate that exposure to a distress shock during the Great Recession increases CEOs’ apparent age by one year over the next decade. Our findings imply significant health costs of managerial stress, also relative to known health risks.
Author(s): Mark Borgschulte, Marius Guenzel, Canyao Liu, Ulrike Malmendier