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Pension Funds

New York City Retirement Systems’ returns lag 7% expected rate

If trend continues, city's pension contributions could increase

New York City Retirement Systems' investment performance is falling behind the expected 7% annual rate of return, raising the prospect that the city could be forced to increase its pension contributions, according to a report by New York state Comptroller Thomas P. DiNapoli.

The report added that "a calculation error" by the city and proposed changes in "assumptions and methodologies" for calculating liabilities also could lead to higher city contributions to its pension system.

The report said the pension system's return on investment through Feb. 28 was "about 2%" for the first eight months of the current fiscal year, which ends June 30.

"While there is still time to mitigate the shortfall, each percentage-point difference from the expected annual return could increase (or decrease) pension contributions by about $30 million in fiscal 2021, $60 million in fiscal 2022 and $90 million in fiscal 2023," according to the March 20 report, which covered all aspects of the city's budget.

The website of city Comptroller Scott M. Stringer shows that for the six months ended Dec. 31 — the first half of the current fiscal year — each of the five pension funds in the city retirement system had negative returns ranging from -3.27% to -4.3%. Mr. Stringer is the fiduciary for the five pension funds.

City pension system assets totaled $186.3 billion as of Dec. 31.

"Our asset allocation is designed to weather various market conditions, because we understand that hundreds of thousands of New Yorkers and their families are depending on us," said Tian Weinberg, a spokeswoman for Mr. Stringer, in an email. "We will continue to monitor the recent increase in market volatility closely, but our long-term path is crystal clear."

As of June 30, the overall funded status of the New York City Retirement Systems was 76% — with individual pension funds ranging from 90% to 65% — on a market value basis, Mr. DiNapoli's report said.

Mr. DiNapoli's report also noted that "the city indicated pension contributions could be higher by about $175 million annually because of a calculation error."

The report didn't provide details of the calculation error, saying that its revelation came after the city published an updated budget analysis called the February Financial Plan. Ms. Weinberg did not comment on the calculation error.

In addition, the city actuary "has proposed changes in the assumptions and methodologies used to calculate pension liabilities," Mr. DiNapoli's report said. If adopted, these changes "could require the city to increase its contribution to the pension funds by $30 million annually."

Mr. DiNapoli's report said the city's February Financial Plan had forecast a city contribution to the pension system of $9.7 billion for the 2019 fiscal year and $9.8 billion for the 2020 fiscal year. Annual contributions are projected to rise to $10.3 billion, $10.7 billion and $10.9 billion for the next three fiscal years.

Mr. DiNapoli's report noted that the city pension system has posted annualized returns of 8% since the 2012 fiscal year when the assumed rate of return was set at 7%, down from 8%.

The city pension system's investment performance was "better than expected" for the fiscal year ended June 30, 2018, achieving an 8.7% return, the report said.

This enabled the city to reduce its planned pension contributions by $50 million for the 2020 fiscal year, by $92 million for the 2021 fiscal year and $151 million for the 2022 fiscal year. However, the forecast could change if the current fiscal year's investment performance continues to lag, the report said.