Hoosier Banker 31 Causes of NPL Growth Low investment returns, insufficient contributions and assumption revisions can cause pension liability growth. A recent study performed by Moody’s reveals that the median investment return target for public pension funds is 7.5 percent, while the median actual returns were only 3.2 percent and 0.52 percent in 2015 and 2016, respectively. Similarly, contributing less than the required amount leads to deficient assets available for liabilities. Employers will, ideally, contribute at least the amount needed to “tread water” or keep their NPLs unchanged. The map produced by Moody’s shown in Exhibit 2 reveals which states contributed enough to tread water. Only half of the states met this benchmark. Another assumption change that causes rising NPLs is life expectancy. People are living longer now, so benefits will be paid for a longer period of time. EXHIBIT 2
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