State Comptroller Thomas DiNapoli has announced that New York’s Common Retirement Fund suffered an investment loss of 4.1 percent in fiscal 2024 — its worst performance since the stock market crash and financial crisis of 2009. The Fund, which now stands just below $250 billion, supports pensions paid to members of the New York State and Local Retirement System (NYSLRS).

“Recent months have been trying for investors, but thanks to the state pension fund’s diverse investments, members, retirees and beneficiaries can rest assured their pensions are secure,” DiNapoli said. “There is no doubt that challenges lie ahead, with concerns over a recession and potential interest rate increases, but the state pension fund is well positioned to weather these storms.”

Left unsaid by the comptroller: last year’s negative return, a whopping 10 percent below the fund’s assumed annual gain for the year, will likely lead to an increase in taxpayer-funded NYSLRS employer contributions starting in 2024.

The pension fund’s loss will come as no surprise to anyone who follows Wall Street: domestic equities are the Common Retirement Fund’s single largest asset class, and stock prices (as measured by the S&P 500) fell nearly 10 percent during the state’s fiscal year, which ended March 31.

In most previous periods across the past several decades, one bad year wouldn’t have an immediate impact on NYSLRS pension costs, because volatility in asset returns historically has been “smoothed” over five-year periods. As shown below, returns over the last five years were particularly volatile, including an all-time record gain of 33.55 percent in FY 2021 as well as two years of losses. The FY 2018-23 average came to 7.5 percent, comfortably above the assumed rate of return used to calculate employer contributions.

This time around, however, the pension fund’s negative return will require a more immediate backfill from taxpayers. Here’s why:

Following that 33.55 percent return two years ago, DiNapoli approved two crucial actuarial changes. In one, he reduced the pension fund’s assumed rate of return (RoR) — which is also the discount rate for calculating future pension obligations — from 6.5 percent to 5.9 percent, the lowest among the nation’s largest public pension systems. This brought New York’s rate much closer to the yields on low- and no-risk fixed-return assets including high-quality corporate bonds (now around 5 percent) and 30-year Treasury bills (now just below 4 percent), which are the standards against which multi-employer private pensions are measured. A pension fund billing employer contributions based on a 5.9 percent discount rate will, in the long run, always be much better-funded and more secure than one assuming a higher return, both for retirees and for taxpayers who (in New York) constitutionally guarantee retirement benefits.

But given the reduced RoR assumption, sticking with smoothing would have minimized if not eliminated DiNapoli’s ability to announce a reduction in taxpayer-funded employer contributions starting in 2022. Unsurprisingly, while the comptroller hoped to get credit for adopting a more prudent RoR, he’d also like to get credit for saving taxpayers’ money, especially heading into an election year. And so the comptroller approved a second tweak to the actuarial rules: pension contributions starting in FY 2022 weren’t based on “smoothed” returns over the past five years (which averaged 7.5 percent) but on a “restart” of actuarial asset measures based on that all-time record gain of 33.55 percent in fiscal 2021.

As explained here two years ago:

The restart comes with risk: if investment returns over the next few years average below the assumed RoR, as they did in the early 2000s and again in the Great Recession, employer contributions will need to be sharply increased in just a few more years.

So far, the risk has not paid off.** The Common Retirement Fund’s returns over the past two years have averaged barely 5.0 percent — so employer contributions will almost certainly have to go up next year, at least slightly.

What about New York’s other public pension funds?

NYSLRS covers all employees of the state government and of local governments outside New York City, including police, firefighters, and most state and local public authority workers. The New York City pension plans and the separate New York State Teachers’ Retirement System (NYSTRS), which covers public educators outside New York City, have more typical fiscal-year calendars running from July 1 to June 30.

While DiNapoli’s fund earned 9.5 percent during the state’s April-March 2022 fiscal year, the city funds and NYSTRS sustained big losses — of 8.7 percent and 7 percent, respectively — in their 2022 fiscal year, which bracketed a steep stock market decline. Conversely, however, on the heels of the state pension fund’s loss, the city pension funds and NYSTRS are likely to hit their investment targets for the recently ended FY 2023, thanks to a 16 percent rise in the S&P 500 during that period.

For more information on recent pension policy developments in New York State, see this December 2021 Empire Center report.


** The last comptroller to approve a similar restart in pension calculations was Alan Hevesi, DiNapoli’s predecessor, following a record investment gain of nearly 29 percent in 2004. Hevesi had much better luck: returns stayed high, well above the RoR, for another four years.

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E.J. McMahon

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

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