Public pensions in Iowa

From Ballotpedia
Jump to: navigation, search

Iowa public pensions
Flag of Iowa.png
Pension System
Number of pension systems 4
State pension systems: Iowa Public Employees' Retirement System
Judicial Retirement System
Peace Officers' Retirement, Accident and Disability System
Municipal Fire and Police Retirement System of Iowa
System type: Defined benefit plan
Pension Health (2012)[1]
Fund Value: $25,778,883,461
Estimated liabilities: $32,590,435,486
Unfunded liabilities : $6,811,552,025
Percent funded: 79.10%
Percent funded change: Decrease.svg0.34%[2]
Percent funded rank: 14[3]
Pension Fund Members (2012)
Total Members: 340,804
Active Members: 168,898
Other Members: 171,906
Other State Pension Information
AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming
Policypedia pension logo.jpg
Pension Policy
Public pensions
State public pension plans
Public pension health by state
Iowa public pensions are the state mechanism by which state and many local government employees in Iowa receive retirement benefits. The Iowa Public Employees' Retirement System (IPERS), the Judicial Retirement System (JRS) and the Peace Officers' Retirement, Accident and Disability System (PORADS) administer benefits to the state's eligible retirees. The Municipal Fire and Police Retirement System of Iowa (MFPRSI) provides benefits to eligible municipal police and fire personnel.

According to the United States Census Bureau, the state has five locally-administered pension systems.[4]

A 2012 report from the Pew Center on the States noted that Iowa's pension system was funded at 81 percent at the close of fiscal year 2010, just above the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as being in need of "improvement."[5]

The funding ratio for the state's pension systems decreased from 89.57 percent in fiscal year 2007 to 79.10 percent in fiscal year 2012, a drop of 10.47 percentage points, or 11.7 percent. Likewise, unfunded liabilities increased from approximately $3.7 billion in fiscal year 2007 to more than $6.8 billion in fiscal year 2012.


Pension plans

In fiscal year 2012, according to the IPERS, MFPRSI and state Comprehensive Annual Financial Reports, Iowa had a total of 168,898 active members in its retirement plans.[6][7][8] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[9]

The following data was collected from the IPERS, MFPRSI and state Comprehensive Annual Financial Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value varied by system in fiscal year 2012 (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[10][11] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[12]

Basic Pension Plan Information -- Iowa[6][7]
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[13] State figure SBS figure[13]
Iowa Public Employees' Retirement System $23,530,094,461 79.91% N/A[14] $5,916,103,025 N/A[14] 164,200 active members
Judicial Retirement System $117,272,000 68.89% $52,960,000 192 active members
Peace Officers' Retirement, Accident and Disability System $292,910,000 61.00% $187,247,000 618 active members
Municipal Fire and Police Retirement System of Iowa $1,838,607,000 73.7% $655,242,000 3,888 active members
TOTALS $25,778,883,461 79.10% 43% $6,811,552,025 $33,926,261,000 168,898 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Iowa paid 89 percent of its annual required contribution.[5][15]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[16] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[17]

ARC historical data*[6][8]
Fiscal year IPERS MFPRSI
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $568,389,507 98.2% $61,911,684 100%
2011 $568,397,561 82.3% $47,392,747 100%
2010 $501,893,236 89.5% $39,852,678 100%
2009 $473,054,363 87.8% $42,112,894 100%
2008 $432,828,217 87.2% $54,565,393 100%

Historical funding levels

Historical pension plan data - all systems[6][7][18][8]
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $22,901,751,415 $25,567,175,782 $2,665,424,367 89.57%
2008 $24,144,085,183 $27,189,867,589 $3,045,783,406 88.80%
2009 $23,415,317,941 $28,819,161,823 $5,403,943,882 81.25%
2010 $23,790,063,560 $29,354,232,650 $5,564,170,090 81.04%
2011 $24,840,953,199 $31,271,680,114 $6,430,726,915 79.44%
Change from 2007-2011 $1,939,201,784 $5,704,504,332 $3,765,302,548 -10.14%

Rate of return

The Iowa Public Employees' Retirement System, the Judicial Retirement System and the Municipal Fire and Police Retirement System of Iowa presume a 7.50 percent return rate on their pension investments.[6][7][8] The Peace Officers' Retirement, Accident and Disability System presumes an 8.00 percent return rate on its pension investments.[7]


Percent Funded Status of Pension Plans
in the 50 States as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPolicypediaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded Ratio of State Public Pension Plans as compiled by State Budget Solutions

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[19] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[20] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[21] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[22] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[23]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[24] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[25][26][27][28][29]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[24]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[30]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Iowa's public pension plans were 43% funded, making it the 12th most funded state.[31]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Iowa) instead of the state-reported assumed rates of return (7.50 percent for Iowa's largest plan as of July 1, 2011).[32]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[32]

The adjusted net pension liability for Iowa's largest pension fund (IPERS) in fiscal year 2011 was ranked the 46th highest in the nation.[32] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Iowa
Governmental revenue* Personal income State GDP Per capita
State findings 16.1% 1.9% 1.6% $767
National ranking 47th 47th 48th 46th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[32]

2014 Public Interest Institute report
In January 2014, the Public Interest Institute, an Iowa-based public policy organization, published an analysis of the state’s pension system’s problems, including possible reforms. The analysis was based on the total liability of the Iowa Public Employee Retirement System (IPERS), which was $29.4 billion for FY 2012, and the expected shortfall of $5.9 billion, since the total value fund was only $23.5 billion in FY 2012.[33] The report identified the state’s defined benefit system as a major factor for the system’s financial risk. “These DB systems create two major risks in a market decline: first, the potential of not being able to pay the promised benefits, though legally required to, and second, those required payments resulting in both significant risk of potential bankruptcy for the state and large tax increases for all workers.” The report advocated a reform of the system based on Utah’s changes to its own public pension system.[33] This would include a 401k-type plan for all new state government employees and a cap on the state’s contributions to a DB plan of 10 percent if the employee did not want a 401k plan (in which the employee must make up the difference for a contribution over 10 percent). In the Institute’s estimation, a Defined Contribution (DC) plan would prevent future risks to the state and taxpayers.[33]


Proposed reforms


S.F. 220

S.F. 220 proposed changes relating to the retirement incentive programs that school districts may offer to employees and pay for through the district management levy. The bill sought to allow districts to pay for such a program through the district management levy for employees aged 55 years or older. The bill passed the Senate on March 12, 2013, but stalled in committee in the House.[34]


H.F. 418

Sponsored by Representative Stewart Iverson, Jr., H.F. 418 proposed to establish a mandatory defined contribution retirement plan for all employees beginning eligible employment on or after July 1, 2013. Introduced on February 25, 2011, the bill was sent to the House Committee on State Government, where it stalled.[35]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has five locally-administered pension plans.[4]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • Financial information is available on the pension system's website. Data is available under the state's sunshine laws.[36]
  • Names of pension recipients are available.[36] Amounts disbursed to pension recipients are available.[36]
  • Investment performance data is available on the IPERS website.[37]
  • Unfunded liabilities are disclosed in the actuarial section of the systems' Comprehensive Annual Financial Reports.[6][7][8]
  • Laws are in place governing gift and hospitality exchanges involving managers and board members of public pension funds. Managers and board members are required to submit regular asset disclosure forms, which are available to the public.[38]

Recent news

This section displays the most recent stories in a Google news search for the term "Iowa + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Iowa Public Pensions News Feed

  • Loading...

See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.0 4.1 United States Census Bureau, "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," April 30, 2012
  5. 5.0 5.1 Pew Center on the States, "Widening Gap Update: Iowa," June 18, 2012
  6. 6.0 6.1 6.2 6.3 6.4 6.5 6.6 Iowa Public Employees' Retirement System, "Comprehensive Annual Financial Report, Fiscal Year 2012," accessed November 11, 2013
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 State of Iowa, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," accessed November 11, 2013
  8. 8.0 8.1 8.2 8.3 8.4 8.5 Municipal Fire and Police Retirement System of Iowa, "Annual Report, Year Ended June 30, 2012," accessed November 11, 2013
  9. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  10. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. Accessed October 23, 2013
  11. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. Accessed October 23, 2013
  12. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  13. 13.0 13.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  14. 14.0 14.1 Analysis only available for system totals and not individual funds.
  15. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  16. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  17. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  18. 18.0 18.1 18.2 State of Iowa, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009," accessed November 11, 2013
  19. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  20. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  21. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  22. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  23. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  24. 24.0 24.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  25. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  26. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  27. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  28. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  29. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  30. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  31. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  32. 32.0 32.1 32.2 32.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  33. 33.0 33.1 33.2 Public Interest Institute, "Innovative Pension Reform in Utah – an Example for Iowa," accessed April 2, 2014
  34. The Iowa Legislature, "Senate File 220," accessed November 11, 2013
  35. The Iowa Legislature, "House File 418," accessed November 11, 2013
  36. 36.0 36.1 36.2 Sunshine Review, Public Pension Disclosure
  37. Iowa Public Employees' Retirement System, "Investment Returns," accessed November 11, 2013
  38. State Integrity Investigation, "Iowa, State Pension Fund Management," accessed November 11, 2013