A pension fund is a plan, or fund which facilitates retirement income to the employees. Municipal pension funds provide pension benefits to employees of the respective municipalities. Every municipal fund offers its members a choice of products, rate of contribution and switching between the funds. Most of the municipalities have their own municipal pension act. The main purpose of this act is to stop the enhancing unfunded liabilities in the municipal pension plans.
Every municipality in the United States must put in the state-mandated smallest amount to any of the pension plans which are established for their employees and this is known as Minimum Municipal Obligation or MMO. To ensure that municipal pension funds plans are adequately funded, the MMO is calculated using actuarial science. Every municipality has to keep the municipal pension funds pension plans solvent, regardless of how much money they have contributed. Moreover, the municipality is responsible for any shortfall between the MMO and the Municipality pension fund contributions. The municipal contributions are a percentage of employees’ wages, plus actual earnings on the pension fund investments. In the year 2008, during the financial downturn, the municipal pension funds faced their huge loss in history, putting pressure on the respective state governments to support them to keep away from pending default. In that year, the municipal pension funds lost around 14.8% of its market value. California Calpers, is the largest public pension fund in the US, reported a loss of 20% for the period ended October 2008. Recent reports suggests that California public employee pension funds are poorer than what predicted earlier. Now it has a shortfall of #520 million. But another report suggests that, Montana’s public pension funds are slowly started to recover, like the stock market. But it is still well below the peak levels.
Municipal pension funds plans are the ones that received a double hit. Before the recession started in 2008, around 80 percent of public pension plans were fully funded. But, by the end of 2009 the figure had fallen to 36 percent. Researchers say that, to return to 80 percent level, the market will take another 2 years. The significant threat to this community’s long term fiscal health is the under-funded pension system.
In South Africa, the Municipal pension funds was formed in the year 1970, with a mission to manage the financial contributions by Local authorities and its members to provide maximum returns on investments. The Municipal pension funds are administered by AKANI Retirement Fund Administrators (Pty) Ltd. The objective of the fund is to receive a minimum annualized return of 3% after inflation. The fund has 18500 members in 5 different provinces.