New York State Common Retirement Fund, Albany, is underfunded by $71 billion, and annual taxpayer payments to keep the $132.8 billion system sound may more than double to almost $4 billion during the next five years, a report says.
Increased payments are needed by the plan to recover from a 26% decline in assets in the year ended March 31, 2009, and to cover benefits lawmakers increased over the past decade, the Empire Center for New York State Policy said.
“The traditional pension system exposes taxpayers to intolerable levels of financial risk and volatility,” said the center, which opposes taxes and promotes outsourcing to private companies and reduced spending.
New York state Comptroller Thomas DiNapoli, the fund’s sole trustee, described the fund as strong during his election campaign.
The fund “has been ranked as one of the best-funded pension funds in the nation,” Dennis Tompkins, a spokesman for Mr. DiNapoli, said in an interview. “The fund has always been at or near 100% fully funded. Comptroller DiNapoli is confident the fund will have enough assets to meet its obligations.”
The center recommended that risk be passed to employees with a new pension system that consists wholly or partly of accounts like 401(k) retirement plans used in businesses, with government contributions set at a fixed rate rather than rising or falling with investment results.
Most taxpayers “will never receive anything approaching the costly, guaranteed benefits available to public employees,” the Empire Center’s report said. An annuity to provide the same benefit as the median $47,000 pension of a New York teacher would cost $860,000, it said.
Mr. DiNapoli announced in September a 37% increase in government contributions due to the plan in February 2012 to 16.3% of payroll from 11.9%. The Division of Budget estimated that contribution rates may rise to 24% of payroll by the fiscal year ending in 2014.
The Empire Center report said the 7.5% assumed rate of return on pension investments is too high and that the practice of measuring pension liabilities and investments with a moving five-year average was a “gimmick.”
Mr. Tompkins said the analysis and recommendation by the fund’s actuary, Michael Dutcher, was reviewed and approved by a board of five independent actuaries.
Over the past 30 years, the fund’s investments gained an average of 10.1% annually, though that fell to 3.7% the past 10 years, the actuary report says.
Using five-year averages instead of market values is intended “to reduce volatility on contribution rates,” the report says.
Reporter Robert Steyer contributed to this report.