ALBANY – The state Teachers Retirement System has officially announced it will lower the pension tab for the state’s nearly 700 school districts amid criticism that the fund has an expected rate of return that is too lofty.
Earlier this month, the $108 billion fund indicated it will lower the contribution rate schools are required to pay for pension costs to 13.26 percent of payroll. That’s a 24.4 percent decline for the fiscal year that started July 1 compared to last year.
The retirement system first indicated in February that it planned to drop the pension bills for schools for the first time in five years as it emerged from the doldrums of the recession in 2008 and 2009.
“The lower 2015-16 ECR (employer contribution rate) is primarily due to favorable investment returns over the last several years,” the retirement system said in a bulletin to school districts. “However, this does not mean rates will continue to decrease in the future. ECRs are dependent upon many variables, such as future investment performance and member demographic experience.”
The lower contribution rate is good news for school districts that have been grappling with higher pension costs. The fund has about 277,000 active members and 150,000 retirees.
The Teachers Retirement System, however, has retained an estimated rate of return of 8 percent a year while other pension funds are dropping their expectations.
The state pension fund, which includes 1 million state and local workers and retirees, in 2010 lowered its estimated rate of return to 7.5 percent a year and is expected to make another drop next month. The teachers’ pension hasn’t indicated whether it will lower its estimates, and it has yet to release how the fund fared for the fiscal year that ended June 30.
Other similarly sized funds, such as those in California, have already released their return rates for the fiscal year that ended nearly two months ago, said E.J. McMahon, president of the Empire Center, a fiscally conservative think tank in Albany.
He said the teachers’ retirement fund in New York should lower its return goals, saying that the higher rate could put a strain on the system and ultimately lead to higher costs for taxpayers.
“I think their contribution rate is artificially low because the (estimated rate of return) is artificially high,” McMahon said.
There was no immediate comment Tuesday from the fund on whether it is considering a lower estimate. In the past, the fund has said that its 20-year rate of return is 9.1 percent and the 25-year rate of return is 9.2 percent.
“All actuarial assumptions, including the assumed rate of return, are reviewed annually,” spokesman John Cardillo said last month. “Additionally, a comprehensive experience study that will include a review of all actuarial assumptions is scheduled to begin later this year.”
Comptroller Thomas DiNapoli, who oversees the government workers’ pension, has indicated in recent months that he is considering a drop in the 7.5 percent estimated rate of return for the $182.5 billion pension fund.
He said the volatility on Wall Street, indicative of the decline this week, shows that pension funds should take a conservative approach with its investments.
“We have the advantage of being a well-funded plan,” DiNapoli said Monday on “The Capitol Pressroom,” a public radio show. “So like all investors, we don’t like when the market goes down, but we’re not necessarily in a position where we have to an immediate reaction to it. We’re going to be in business for a long time.”
© 2015 Gannett News Service