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N.Y. comptroller: Low pension fund returns will accelerate contribution levels

Thomas DiNapoli
Thomas DiNapoli

Weaker than anticipated investment performance might force New York City to make higher than planned contributions to the city's retirement system starting in the 2018 fiscal year, said a report by New York state Comptroller Thomas DiNapoli on Tuesday.

“Pension fund investment earnings are running short of expectations in fiscal year 2016 because of the decline in the equity markets,” the report said, referring to the $154 billion New York City Retirement Systems, which encompasses five city pension funds. Fiscal years start on July 1.

“Unless earnings rebound in the next month, future contributions beginning in fiscal year 2018 could increase faster than planned to make up for the shortfall,” said the report, an analysis of all New York City finances that includes an analysis of the retirement system.

Mr. DiNapoli's report is based on a review of the New York City executive budget for the 2017 fiscal year proposed by Mayor Bill de Blasio and a city financial plan from the mayor's office of management and budget that makes projections for the 2016 fiscal year through the 2020 fiscal year. Both were issued last month. Recent investment performance has raised questions about the retirement system's ability to meet its assumed annual rate of return of 7%, Mr. DiNapoli's report said. The state comptroller's office “estimates that each percentage point shortfall from the 7% earnings target in fiscal year 2016 could increase pension contributions by $20 million in fiscal year 2018 and by $132 million annually when fully phased in by fiscal year 2023.”

The city's financial report has estimated that city pension system contributions will be $9.29 billion for fiscal year 2016 and $9.79 billion for fiscal year 2020.

In the fiscal year ended June 30, 2015, the combined return for the five city pension funds was 3.15%. The aggregate annualized return was 13.4% for the five years ended June 30, 2014.

However, for the eight months ended Feb. 29, each of the five funds had negative returns, ranging from -4.86% to -6.61%, according to the latest available data from the comptroller's office.

Assessing investment performance through May 20, Mr. DiNapoli estimated that “the city's pension funds have not made any gains on their investments” during the current fiscal year, the report said.

City Comptroller Scott Stringer said Thursday that investment returns were “essentially flat” through March 31.

Mr. Stringer, the fiduciary for the five city pension funds, offered his analysis in a report released May 19 about Mr. de Blasio's fiscal year 2017 budget and long-term financial plan during testimony before the New York City Council's Finance Committee.

Mr. Stringer forecast city pension contributions of $9.2 billion for the 2016 fiscal year, rising to $9.7 billion for the 2019 and 2020 fiscal years.