Home

Empire Center for
  Public Policy


Categories

Manhattan Institute
  for Policy Research

Fiscal Watch Memos

Payroll Watch Archive


   

Enter your e-mail address to receive notifications when there are new posts

 

 

 

May 23, 2012


“Strong gain” by pension funds misses target

E.J. McMahon

The New York State and Local Retirement System (NYSLRS) closed its most recent fiscal year with a return of just 5.96 percent — well below the 7.5 percent target rate used to discount its long-term liabilities.

Seeking to accentuate the positive, a press release from Comptroller Thomas DiNapoli (”DiNapoli: State Pension Fund Posts Strong Gain”) points out that the fund’s total asset value of $150 billion as of March 31 was the “highest since the global economic meltdown in state fiscal year 2008-2009.”

But here’s another way to look at it: the fund is still $6.3 billion below its level at the end of fiscal 2006-07, a period in which benefit payouts have risen nearly $3 billion.  The below-target return for 2012 alone represents a shortfall of about $2.2 billion — i.e., the fund’s asset values would total $152.5 billion if it had earned 7.5 percent, and would still be about $4 billion below the fiscal 2007 level.

For purposes of setting employer contribution rates, the state pension fund normally “smooths” asset values into a rolling five-year average, to iron out some of the volatility in financial markets.  Since abruptly “re-starting” its asset base calculation to take advantage of a strong market recovery in 2004, NYSLRS’ average annual rate of return has been 6.2 percent. The chart below shows the trend in NYSLRS asset values, indexed to 100, using NYSLRS return assumptions compared to actual returns in the past eight years.

Source: Empire Center calculatuons, NYSLRS 2011 Comprehensive Annual Finance Report

Source: Empire Center calculatuons, NYSLRS 2011 Comprehensive Annual Finance Report

If actual returns had met the target throughout that period, the fund’s asset values should be about 13 percent higher, which would equate to a total of $170 billion.  Contributions to the fund will remain well above projected “normal” levels until this gap is closed.

By the way, NYSLRS’ domestic equity portfolio is its largest category of holdings.  Last year, it earned 6.9 percent, closely tracking the S&P 500. But since the state fiscal year ended, the S&P 500 has lost about 6.5 percent.

1 Comment »

  1. Time for the NYS Taxpayer to dig deeper and make up the shortage. Just how much longer is the Taxpayer supposed to support this Ponzi Scheme ??? I’m sure the Politicians will have an answer !!!

    Comment by eatingdogfood — May 23, 2012 @ 7:52 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

 

 
 

Empire Center for Public Policy
P.O. Box 7113 - Albany, New York 12224
phone: 518-434-3100