New York and its local governments outside New York City will pay $900 million more into the state’s pension fund in the coming fiscal year after benefit sweeteners were approved by state lawmakers and public employee salaries rose.
Municipalities’ pension contribution rates will increase to 16.5% of payroll from 15.2% for civil employees for the the fiscal year beginning April 1 and to 33.7% of payroll from 31.2% for police officers and firefighters, state Comptroller Thomas P. DiNapoli said Sept. 3.
The contributions into the pension system are rising after lawmakers reversed a 2012 pension reform pushed through by former Gov. Andrew Cuomo. Significant salary growth for active participants, rising life expectancy and lagging investment performance in 2022 are also pushing up the contributions, according to an actuarial report approved by DiNapoli.
Under legislation passed as part of the state budget this year, pension benefits for so-called Tier 6 employees will be calculated based on the average of the final three years of employment. Because of salary raises, that’s more costly than the five-year method adopted by the state in 2012 after the financial crisis opened up yawning deficits in the pension system.
The changes retroactively increased pension payouts to public employees who started working more than a decade ago and boosts benefits for not-yet hired employees.
The shift also applies to New York City, adding $165 million in pension benefit costs in the current fiscal year, according to the city comptroller. New York City’s five public employee pension funds are separate from the state.
The pension costs also reflect the toll of the stock market downturn two years ago, which caused New York state’s pension fund to fall far short of its 5.9% assumed rate of investment return for the fiscal year ended March 31, 2023. While the investments rebounded, it wasn’t enough to offset the prior year's loss.
New York’s state pension fund was 93.2% funded as of March 31.
