“Stellar” year, but still in the hole

by E.J. McMahon |  | NY Torch


Stars in his eyes

Comptroller Thomas DiNapoli’s announcement today of “stellar” pension fund investment earnings in fiscal 2014 doesn’t mean tax-funded pension costs will be headed rapidly back to “normal,” whatever that may be.

DiNapoli says the Common Retirement Fund, which finances pensions for members of the New York State and Local Retirement System (NYSLRS), gained 13.06 percent last year, well above its assumed average return of 7.5 percent fora second consecutive year.  The fund’s total assets now come to $176.2 billion.

But as usual, such statements need to be taken with a grain of salt. Consider the chart below.  It shows that a dollar invested in the fund in 2000 would now be worth $2.21.  However, if the fund had hit its rate of return target (8 percent before 2010, 7.5 percent since then), that dollar would now be worth $2.90, or 31 percent more.

Since 2000, which capped off its best decade ever in terms of investment performance, the Common Retirement Fund has gained an annual average of just 5.8 percent, including the double-digit returns of the past two years.


  • benefits paid out of the fund increased from $3.7 billion in 2000 to $9.4 billion as of 2013 (the most recent year for which data are available), which translates into annual growth rate of 7.4 percent;
  • annual contributions to the fund by state and local employees dropped from $423 million to $269 million; and
  • taxpayer contributions rose from $165 million to nearly $5.4 billion a year to make up for the fund’s losses in bad years.

The bottom line: benefits keep increasing every year, but asset returns are highly variable — much more so since 2000.

In fact, according to its own most recent actuarial report, the fund has less than a 50-50 chance of earning as much as 7.5 percent annually. If it somehow manages to do so, tax-funded contributions will continue to slowly subside from 2013-14 peak levels.  But if the fund repeats its 2000-05 performance, when it averaged 3.6 percent, the pension bill for taxpayers will shoot up again. And contributions will shoot above 2013 levels if the next five years replicate 2004-09, when the average return was just above 1 percent.

Last but not least, like all public pension systems, NYSLRS uses actuarial assumptions that significantly under-state the true extent of its unfunded liabilities.



- E.J. McMahon is the Research Director at the Empire Center for Public Policy.