Last week, Comptroller Tom DiNapoli announced that state and local government pension costs will decrease by nine percent in the 2015-16 fiscal year, the largest decrease in five years. This is good news for local governments, which have faced increasing pension costs in recent years because of pension system investment losses and the growing number of retirees tapping into the system.
Comptroller DiNapoli said:
“The state pension fund’s solid investment performance has delivered another decline in employer contribution rates. The effects of the 2008 financial market collapse are still being felt around the country, but New York’s pension fund is well-funded, is steadily recovering and will continue to meet its obligation to our more than one million Retirement System members and retirees.”
While this may seem like good news, the full situation is not nearly so rosy. As the Empire Center for Public explains, the state pension fund’s target rate for annual growth since 2011 has been 7.5%. If its returns fall short of that target, employers’ contributions increase to make up the difference. The average gain for the past seven years has been 6.6%, but when the 2009 plunge of 26.4% is accounted for, the annualized gain over that period is just 5.4%.
The bottom line: beware of politicians making “good news” announcements shortly before Election Day.