New York State’s largest public pension fund earned 7.16 percent—short of its 7.5 percent target—during the fiscal year ending March 31, state Comptroller Thomas DiNapoli announced today.

The $183.5 billion Common Retirement Fund, of which DiNapoli is sole trustee, had previously announced a first-quarter gain of 3.8 percent, a second-quarter loss of 0.52 percent and a third-quarter gain of 1.91 percent.

So fiscal 2015’s sub-par result—the fund’s lowest since 2012, and fourth-lowest in a dozen years—wasn’t really too surprising. In fact, it can be seen as a reality check after two years of double-digit returns, drawn mainly from a stock market punch bowl spiked by extraordinarily low bond rates. A return on the low side lends credence to DiNapoli’s expected move later this year to reduce the pension fund’s current rate of return assumption.

Under government accounting standards, the assumed rate of return also is used to “discount” the fund’s long-term liabilities, which determines the level of contributions demanded from the state and local governments. A lower rate will require higher contributions, which will at least provide a somewhat more accurate reflection of the long-term costs and risks associated with public pension promises.

Last year, DiNapoli took another prudent step by accepting his actuary’s recommendation to adopt a new “mortality table” reflecting the longer lifespans of today’s retirees.  This, along with (perhaps) a guess at a coming lower discount rate, led Governor Cuomo’s Budget Division to increase the state’s long-term pension cost projections.

New York City’s pension funds currently use a 7 percent discount rate, arguably still too high.* In fact, there’s a broad consensus among private-sector actuaries, financial analysts and economists that public pension funds—which, after all, tend to absolutely guarantee their benefit payments—should discount liabilities at something closer to a low-risk investment rate (closer to 4 percent), as is required of private sector pension funds and of private insurance reserves.  The city’s five pension funds are between $70 billion and $150 billion short of what they need to pay all promised benefits, depending on which discount rate is used to calculate them.

Meanwhile, the rate of return assumption by the New York State Teachers’ Retirement System (NYSTRS) remains stuck at a lofty 8 percent. But financial market indicators suggest NYSTRS also could fall short of its target for its fiscal year, which ends June 30. It’s harder to predict—because the NYSTRS trustees, unlike DiNapoli, do not provide quarterly updates on their fund’s performance.

As noted here a few months ago:

While both pension funds rebounded strongly in 2013 and 2014, they have yet to completely recover from their lackluster average performances since 2000. The Common Retirement Fund is still a ticking bomb for taxpayers.  And while stock prices flirted with all-time highs today, another bear-market (i.e., a “correction” of 20 percent or more) is inevitable. If it comes within the next year, public pension costs in New York will rise sharply again before the end of this decade — before they have finished falling from previous highs.

* New York City, a reader notes, is slowly transitioning (i.e., amortizing) the cost of reducing its discount rate from 8 percent to 7 percent over 22 years, so it’s effectively still discounting at a higher rate than the New York State Common Retirement Fund — which, by contrast, has had a policy of adjusting contributions immediately when a discount rate is changed.