On the heels of Governor Paterson’s gloomy budget update, state Comptroller Thomas DiNapoli announced the state’s Common Retirement Fund has lost 20 percent of its value since April 1. That would translate into a drop of $31 billion from the March 31 level of $154 billion.
But the comptroller is a glass-half-full kind of guy. While the fund has been hard hit by the financial meltdown, it “remains strong” and “is built to survive fluctuations in the market, even ones as severe as the current downturn,” he says. And besides, any increase in pension fund contributions has been lagged for a full two years. Which is not to say higher costs won’t be paid–only that they will be delayed. A prolonged shortfall below the retirement fund’s 8 percent target rate of return will tug down its actuarially blended average sufficiently to force large increases in taxpayer-funded employer contributions
In fiscal 2007-08, the state pension fund’s rate of return was only 2.6 percent — its fourth worst performance in the past 25 years. Payments to beneficiaries of $6.8 billion were more than double contributions by employers and employees, so the fund’s net value dropped slightly, from $154.6 billion to $153.9 billion.
As DiNapoli noted, the pension fund has weathered similar downturns earlier in this decade, losing nearly $31 billion after the market peaked in 2000. In that case, however, a 24 percent loss was absorbed over three fiscal years–and the fund recovered virtually all its lost value by 2005.
“The Fund is structured to weather periods of market turbulence,” DiNapoli said. With 54 percent of its assets invested in stocks, and another 14 percent in private equities and real estate, it certainly is exposed to a lot of financial bad weather at the moment. Another sharp market recovery could minimize the inevitable increases for taxpayers starting in 2010. But what if, as some believe, the market is about to experience another “lost decade,” fluctuating wildly at times but ending up back where it started in, say, 2018? In that case, tax-supported employer contributions in New York could rise within the next decade from the current level of 7.4 percent to well over 20 percent of salaries (and higher for police and firefighters).