The New York State and Local Retirement System (NYSLRS) closed its most recent fiscal year with a return of just 5.96 percent — well below the 7.5 percent target rate used to discount its long-term liabilities.

dinapoli-7655414Seeking to accentuate the positive, a press release from Comptroller Thomas DiNapoli (”DiNapoli: State Pension Fund Posts Strong Gain”) points out that the fund’s total asset value of $150 billion as of March 31 was the “highest since the global economic meltdown in state fiscal year 2008-2009.”

But here’s another way to look at it: the fund is still $6.3 billion below its level at the end of fiscal 2006-07, a period in which benefit payouts have risen nearly $3 billion.  The below-target return for 2012 alone represents a shortfall of about $2.2 billion — i.e., the fund’s asset values would total $152.5 billion if it had earned 7.5 percent, and would still be about $4 billion below the fiscal 2007 level.

For purposes of setting employer contribution rates, the state pension fund normally “smooths” asset values into a rolling five-year average, to iron out some of the volatility in financial markets.  Since abruptly “re-starting” its asset base calculation to take advantage of a strong market recovery in 2004, NYSLRS’ average annual rate of return has been 6.2 percent. The chart below shows the trend in NYSLRS asset values, indexed to 100, using NYSLRS return assumptions compared to actual returns in the past eight years.

nyslrs-return-1697236

If actual returns had met the target throughout that period, the fund’s asset values should be about 13 percent higher, which would equate to a total of $170 billion.  Contributions to the fund will remain well above projected “normal” levels until this gap is closed.

By the way, NYSLRS’ domestic equity portfolio is its largest category of holdings.  Last year, it earned 6.9 percent, closely tracking the S&P 500. But since the state fiscal year ended, the S&P 500 has lost about 6.5 percent.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

You may also like

DiNapoli audit diagnoses the Health Department’s chronic conditions

A penetrating new audit of the Health Department's pandemic response makes clear that problems at the agency run much deeper than its misreporting of nursing home deaths. Read More

DiNapoli bolsters pension fund stability—and cuts tax-funded costs

DiNapoli announced today that he's approved a recommendation by the State Retirement System Actuary to reduce, from 6.8 percent to 5.9 percent, the assumed rate of return (RoR) on investments by the $268 billion Common Retirement Fund, which underwrites the New York State and Local Employee Retirement System (NYSLERS) and Police and Fire Retirement System (PFRS), of which the comptroller is the sole trustee. Read More

The Gov’s pension

There are several (dozens? hundreds?) of unanswered questions as the fallout from Andrew Cuomo's resignation earlier today continues. Among those are questions related to his pension, some of which can be answered, sort of. Read More

New York’s State Share of Medicaid Spending is Due to Jump 22 Percent This Fiscal Year

The state share of Medicaid spending is projected to jump 22 percent under the recently approved state budget, an unusually steep one-year jump for what is already one of New York's biggest expenditures. Read More

State Tax Receipts Strong Again in November, But Jobs Recovery Remains Slow

New York State's tax receipts in November were a whopping $800 million above Governor Cuomo's projections for the month—further evidence that the current-year budget gap is probably much smaller than Cuomo has been claiming. Meanwhile, however, priva Read More

Cuomo’s $1.7B Medicaid mulligan

This year's state budget came with a hidden asterisk: In the final throes of his negotiations with legislative leaders, Governor Cuomo quietly postponed a month's worth of Medicaid payments from the last week of March to the first week of April – shifting $1.7 billion in spending from one fiscal year to the next. Read More

DiNapoli blocks the union exit

State officials are still working overtime to shield government unions from the impact of the U.S. Supreme Court decision in Janus v. AFSCME. This week, Comptroller Thomas DiNapoli’s office has issued new guidelines effectively giving the unions the first say on efforts by employees to opt out of union dues payments. Read More

NYSTRS bill to drop again

The New York State Teachers' Retirement System (NYSTRS) will reduce its pension contribution rates for a third consecutive year in 2017-18, even though the pension fund's investment returns came in well below its target rate in fiscal 2016. Read More