New York’s chief actuary is recommending the city’s $115.2 billion pension plans lower their assumed annual rate of return on assets to 7% from 8%, which would open a funding gap of at least $2 billion next year, according to two people familiar with the proposal.
Actuary Robert North is presenting his plan to overseers of funds for police, firefighters, teachers, civilian employees and school administrators, the sources said. They spoke on the condition of anonymity because the proposal hasn’t been made public.
The city already has set aside $1 billion for the fiscal year beginning July 1 to cover an increase in its annual pension contribution.
“To pay it all at once would be a big hit,” said Domenic Recchia Jr., chairman of the City Council’s Finance Committee, adding that a 7% assumed return seemed “sensible.”
In the 10 years through June 2010, America’s biggest state pension systems — battered by the Internet stock bubble, the financial crisis of 2008 and the longest recession since the Great Depression — earned an annualized return of less than 4%, according to data compiled by Bloomberg.
As a result, public pension funds have been forced to re-evaluate the projected returns. Some systems, including in Rhode Island and the $146.2 billion California State Teachers’ Retirement System, West Sacramento, have reduced their assumptions. Lowering projected gains can widen funding gaps, forcing lawmakers to put even more money into the programs.
Matthew Sweeney, a spokesman for New York City Comptroller John Liu, declined to comment citing the draft nature of the recommendation.