State pension gain in perspective

The state pension fund gained about 10.4 percent on its investments during the recently ended 2012-13 fiscal year, Comptroller Thomas DiNapoli announced today. The latest gain is comfortably above the pension fund’s 7.5 percent target rate of return.

So happy days are here again in public pension land, right? Um, no—not quite. A couple of points:

DiNapoli is quoted as saying that the pension fund’s asset values as of the March 31 end of the 2012-13 fiscal year had reached had “an all-time high” of $160.4 billion. This is simply another way of saying that the fund has finally climbed back above the $154.6 billion level it had reached five long years ago, at the end of fiscal 2006-07, before losing 26 percent in fiscal 2008-09.
This year’s 10.38 percent gain, nicely exceeding the 7.5 percent target rate of return, is on top of a sub-par gain of about 6 percent in 2011-12. With double-digit gains in each of three of the last four years, the fund’s assets have returned a net 27 percent since fiscal 2006-07. But if the fund had hit its target return rate in each of those years, its gain since 2006-07 would have been 56 percent. In short, the fund is still in the hole to the tune of tens of billions of dollars, while paying out more than $9 billion in benefits a year. Taxpayers are stilldigging out of it.

DiNapoli also says that 2014-15 will be “the final year that employer contribution rates will reflect the market loss of 2008-2009.” That’s not right, though. Barring a repeat of the 2003-07 economic and market bubble, it will be years more, probably the end of the decade at least, before rates subside to the expected long-term rate of 11.6 percent percent or less for Tier 3 and 4 ERS employees, compared to the 2013 billed rate of 18.4 percent. This assumes the fund meets or exceeds its target every year, on average.

Perhaps the comptroller meant to say that 2014-15 will be the last year that contribution rates must increase to make up for 2008-09 losses. That’s probably the case, but it doesn’t mean pension rates will never again increase.