Municipal Government

Liu Releases Report on Escalation of Pension Costs

April 11, 2011
By Kismet Barksdale

Comptroller Liu requested the study to examine the steep rise in annual employer contributions to the Pension Funds over the past decade. Pension cost rose from $1.2 billion in Fiscal Year 2001 to $7.7 billion in Fiscal Year 2010. The study was validated by independent actuaries.

“The data challenges widespread notions that overly generous benefits played the leading role in the escalation of City contributions”

Deputy Comptroller for Budget and Accountancy Simcha Felder said. “In fact, the study found that the major factor in the rise in employer contributions to the City’s Pension Funds has been poor market performance. The lower than expected investment returns accounted for 48% of the cost increase.

The study found that escalation in the employer contributions to the City’s Pension Funds was driven by the following major factors:   

Deputy Comptroller for Budget and Accountancy Simcha Felder said. “In fact, the study found that the major factor in the rise in employer contributions to the City’s Pension Funds has been poor market performance. The lower than expected investment returns accounted for 48% of the cost increase.”The study found that escalation in the employer contributions to the City’s Pension Funds was driven by the following major factors:  

•    The largest factor was poor market performance which accounted for 48% of the increased cost. It added $3.1 billion to costs in FY 2010, and accounted for $15.2 billion over the decade. The lower investment returns this decade stand in contrast to the consistent higher annual returns experienced in the 1980s and 1990s.  

•   The second largest factor was benefit increases, which accounted for 44% of the additional cost. It added $2.4 billion in FY 2010, and accounted for an estimated $13.7 billion over the course of the decade. It must be noted that almost all of the benefit improvements were enacted in 2000. The benefit improvements enacted after 2000 have been relatively nominal, accounting for about 4% of the increase in pension cost.

“New York City has successfully managed its pension funds for more than a century. While pension reform is needed, radical changes to retirement benefits should not be made based solely on one of the worst decades in market performance,” Comptroller Liu said. “Residents of the City should be proud that in spite of tough economic times, the New York City Pension Funds continue to meet their obligations.”

The current asset value of the New York City Pension Funds is $114.9 billion, which indicates a 17% percent rate of return fiscal year to date (July 1, 2010 – January 31, 2011).

April 10, 2011

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